RONALD L.

MEEK
 STUDIES IN
THE LABOR THEORY
OF VALUE
RONALD L. MEEK
Second Edition
With a New Introduction by the Author

Monthly Review Press

New York and London
Copyright© 1956 by Ronald L. Meek
All Rights Reserved Second Edition 1973
Library o f Congress Cataloging in Publication Data
Meek,Ronald L.
Studies in the labor theory o f value.
First ed. published in 1956 under title:
Studies in the labour theory of value.
Includes bibliographical references and index.
1. Value 2. Marxian economics. I. Title.
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 CONTENTS
Page
In t r o d u c t i o n t o t h e S e c o n d E d i t i o n i

P r e f a c e t o t h e F ir s t E d i t i o n 7

C h a p te r O n e . V a l u e T h e o r y B efore A d a m Sm it h ii

1. The Canonist Approach to the Value Problem 12

2. The Mercantilist Theory o f Value 14
3. The Transition to Classical Value Theory 18
4. The Classical Concept o f “ Natural Price’* 24
5. The Classical Concept o f Labour Cost 32

C h apter T w o . A d a m Sm it h a n d th e D evelopm ent of

the L abour T heory 45
1. The Theory of Value in the “ Glasgow Lectures” 45
2. The Transition to the “ Wealth of Nations” 53
3. The Theory o f Value in the “ Wealth o f Nations” 60
(a) The “ Real Measure” of Value 60
(b) The “ Regulator” of Value 69
(c) The Role o f Utility and Demand 72
(d) The Reduction o f Skilled to Unskilled
Labour 74
4. The Place o f Smith in the History of Value Theory 77

C h a p te r T hree. D a v id R ic a r d o a n d the D evelopm ent

of th e L abour T heory 82
1. Some General Considerations 82
2. Ricardo’s Treatment o f Value Prior to 1817 86
3. The Theory o f Value in the First Edition o f the
“ Principles” 97
4. The Theory o f Value in the Third Edition o f the
“ Principles” 105
5. The Final Stage: The Development o f the Concept of
Absolute Value no
6. The Place o f Ricardo in the History o f the Labour
Theory 116
6 STUDIES IN THE L ABO UR THEO RY OF VALUE
Page
(I)---------------------1 2 1
C h a p te r F o u r. K a r l M a r x ’s T h e o r y o f V a lu e
1. The Development o f Value Theory from Ricardo
to Marx 121
2. The Early Development o f Marx’s Economic Thought 129
3. Marx’s Economic Method 146

(II)
C h a p t e r F iv e . K a r l M a r x ’ s T h e o r y o f V a l u e 157
1. The Concept o f Value in Chapter 1 o f “ Capital” 157
2. The Refinement and Development o f the Concept 167
3. The Application of the Concept 177
4. The Analysis in Volume III o f “ Capital” 186

C h a p t e r Si x . T h e C r it iq u e o f t h e M a r x i a n L a b o u r
T heory 201
1. Introduction 201
2. Pareto’s Critique 204
3. Bernstein’s Critique 211
4. The Critiques o f Lindsay and Croce 215
5. The Critiques of Lange, Schlesinger and Joan
Robinson 225
6. Conclusion 239

C h apter Sev en . T he R e a p p l ic a t io n of th e M a r x ia n
L abour T heory 243
1. The “ Marginal Revolution” and its Aftermath 243
2. The Operation of the “Law o f Value” under Socialism 256
3. The Operation o f the ‘Law o f Value” under
Monopoly Capitalism 284

A p p e n d ix : K a r l M a r x ’s E c o n o m ic M e t h o d 299

In d e x 319
 INTRODUCTION
TO THE SECOND EDITION
This book, which was first published as long ago as 1956, has been
out o f print for many years. I understand, however, that there has
continued to be a certain demand for it, and that this has increased
somewhat during the past five years or so— as a result, no doubt, of
the recent resurgence o f interest in Marx, particularly among young
people. The publishers have therefore suggested to me on a number
of occasions that the time might be ripe for a revised second edition,
and have shown remarkable patience in the face o f the ill-disguised
delaying tactics which, until very recently, I felt obliged to
adopt.
M y initial reluctance to sit down and revise the book was due in the
main to the pressure o f other concerns and interests, coupled with a
realisation that since I had not kept up with some o f the relevant
literature the task of revision would probably be very time-consuming
indeed. In addition, I was worried about the nature and extent o f the
revisions which might turn out to be necessary as a result of certain
changes which had taken place in some o f my political views.
When I finally came round to reading the book again, however, my
worries on the latter score were considerably lessened. It was certainly
true, I found, that I had rather tended to treat the labour theory o f
value as if it were one of the Thirty-nine Articles, and that this had
led to an undue defensiveness and didacticism which now appeared
somewhat quaint and old-fashioned. But it did seem to me that it
was the manner of the book, rather more than the matter, which had
been affected by this. In the case of most o f the major points which
now needed correction or elaboration, the reasons why they needed it
had very little directly to do with politics at all.
In view o f all this, I was happy to agree to a second-best solution,
to the effect that the text of the book should be photographically
reproduced from the original edition o f 1956 without any alteration
whatever, but that it should be prefaced by a new introduction which
would indicate some of the main ways in which I felt the book needed
up-dating and revision, and followed by an article on Marx’s economic
method (written in 1966 on the basis of an earlier piece dating from
ii STUDIES IN THE L AB OUR TH E OR Y OF VALUE
1959) which summed up my attitude towards Marxian economics in
general.1 The present volume, for better or for worse, is the result.
This introduction, which makes use o f several o f the themes in the
article at the end and carries one or two o f them rather further,
surveys the successive chapters o f the book in some detail, in an en­
deavour to identify the main points which seem to me today to call
for clarification, development, or alteration. I fear that the number
o f questions I shall ask in the introduction rather exceeds the number
o f answers that I shall be able to give, but I hope at any rate that the
questions are the right ones, and that my asking them will stimulate
further debate in this important and interesting field.
In most cases, the editions o f cited works which I have used in the
introduction and the article at the end are the same as the editions which
I used in the original book. The most important exception to this is
Marx’s Capital: in the original book I used the Allen and Unwin
edition of Volume I and the Kerr editions o f Volumes II and III,
whereas in the introduction and the article I have used the English
editions o f Volumes I, II, and III published by the Foreign Languages
Publishing House, Moscow, in i954> 1957, and 1959 respectively.

1. The Labour Theory o f Value before Marx

So far as the first three chapters o f the book are concerned, there
are only a few individual points which I would wish to develop or
alter were I rewriting the book from the beginning, but there is one
rather important additional theme which I would probably want to
elaborate alongside the others. Let me deal first, very briefly, with
the individual points, and then outline this additional theme.
In the first chapter, on value theory before Smith, I make a fairly
hard and fast distinction between the “ Canonist” approach on the one
hand and the “ Mercantilist” approach on the other. As a concession
to certain o f the views expressed by Schumpeter in his History o f
Economic Analysis (1954). 1 would now prefer to call the two stages
“ Aristotelian-Scholastic” and “ Neo-Scholastic-Mercantilist” respec­
tively, in order to make it clearer that certain o f the later scholastic
doctors made important positive contributions to what I call in the
book the “Mercantilist” theory. I would still wish to claim, however,

1 In the version reprinted here, this article was written for m y Economics and Ideology
and Other Essays (London, Chapm an and H all, 1967). I am indebted to Messrs. Chapm an
and H all for allow in g it to be republished in the present volum e.
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N iii
as against Schumpeter, that there was an essential difference between
the value theories of the two stages.1 The only other point in relation
to the first chapter is that if I had known more about early French
and Italian economic thought when I wrote the book, I would have
emphasised that the developments described in sections 3, 4, and 5
were essentially British, and that the traditions inherited by Smith’s
opposite numbers in France and Italy towards the end o f the eighteenth
century were different in certain quite important respects.
So far as the second chapter, on Smith’s theory of value, is concerned,
the first point is that since I wrote the book a new set of student’s
notes of Smith’s Glasgow lectures has been discovered.2 This set o f
notes, so far as it goes, is much fuller than the set published by Cannan
in 1896, and my feeling from a preliminary inspection o f the manu­
script is that some o f my judgements in the first section o f the second
chapter may now be open to question,3 although I do not think that
the broad conclusions will be seriously affected. Second, if I were
rewriting the book I would extend, and give more prominence to, the
passage on pp. 51-3 about Smith’s use o f a materialist conception o f
history, making particular reference to his theory o f the development
of society through the hunting, pastoral, agricultural, and commercial
stages. This “ four stages” theory, as I now see it, was one of the major
factors in the development o f the new science o f society which began
to emerge, in France as well as in Britain, in the latter half o f the
eighteenth century.4 Third, 1 now feel that in my account o f Smith’s
treatment o f the measure o f value I may have underestimated the
extent to which this treatment represented not only a stage in the
development o f his theory o f the determination o f value but also an
attempt to solve the index-number problem. I do not think that this
really affects the essence o f my interpretation, but it does mean that
it was perhaps over-simplified.
The third chapter, on Ricardo’s theory of value, in which I was
fortunate in being able to draw heavily on Mr. Sraffa’s remarkable
introduction to his edition o f Ricardo’s works, does not seem to me to
1 I have developed this point in m y Economics and Ideology, pp. 200-1. See also below ,
pp. 295-6.
2 T h e n ew lecture notes are being edited b y Professor P. Stein, Professor D . Raphael,
and m yself, and w ill, it is hoped, be published (as one o f the volum es in a new edition
o f Sm ith’s w orks and correspondence) w ithin the next three or four years.
3 In particular, I m ay have slightly underestimated the extent to w hich Smith, in his
lectures, anticipated the concept o f a natural rate o f profit w hich was later to feature so
prom inently in the Wealth o f Nations.
4 C f. m y article on “ Sm ith, T u rgo t, and the ‘Four Stages* T h eo ry ” in The History o f
Political Economy, V o l. 3, N o . I, Spring 1971.
iv STUDIES I N THE LA BOU R TH E OR Y OF VALUE
need much alteration. Were I rewriting it, however, I would try to
clarify the illustration on p. 104 a little,1 and in my account o f Ricardo’s
theory I would lay more emphasis on the fact that Ricardo thought in
terms o f an intensive, as well as an extensive, margin in agriculture.
Then again, being now able to look at Ricardo’s discussion o f the
invariable measure o f value from the vantage-point o f Mr. Sraffa’s
Production o f Commodities by Means o f Commodities (i960), I would
probably lay rather more emphasis on the first of the two “ reasons”
noted in the second paragraph on p. 112. And finally, instead of
merely noting Ricardo’s assumption that savings were made almost
exclusively out o f profits (p. 84), I would feel obliged to adduce some
kind of an explanation for it.
The additional major theme, mentioned above, which I would
probably now wish to develop in association with the others, arises
out o f my discussion in chapter 1 o f the emergence o f the Classical
concept o f a natural rate o f profit on capital, and concerns an important
methodological difference between the way in which Smith explained
the working o f the economic machine and the way in which his great
contemporary Turgot explained it. During the seventeenth and early
eighteenth centuries, as capitalism developed, an important distinction
began to be made between money which was “passively” utilised (by
lending it out at interest, or using it to buy a piece of land), and money
which was “ actively” utilised, either in agriculture or in “ trade”
(cf. below, p. 25). As the eighteenth century progressed, a further
distinction came to be made, within the general category “ trade” ,
between the two separate activities o f merchanting and manufacturing.
Here, then, were five different ways in which a stock o f money could
be utilised so as to yield a revenue: lending it out at interest, using it
to buy a piece of land, and employing it in order to set up as an entre­
preneur in agriculture, merchanting, or manufacturing; and it gradually
came to be recognised that it was in a sense through the utilisation of
money m these ways, and in particular through the transfer of money
from one use to another by its owners, in search of the highest reward,
that a capitalist economic system worked.
Now all these ways of utilising money had one important feature in

1 The point at issue can be seen m ore clearly i f one imagines that industry A in m y
example is the gold-producing industry. Since the price o f a given output o f gold, or
gold coins, cannot alter, it follow s that w hen wages rise b y 10 per cent, capital in industry
A w ill lose exactly the amount w hich labour gains, thus low ering the rate o f profit there
to 9^f per cent, and that the prices in industries B and C w ill then have to adjust in such
a w ay as to yield a profit o f 9 ^ per cent in these tw o industries as w ell.
 I N T R O D U C T I O N TO THE S E C O N D E D I T I O N V
common: they resulted in the receipt of a revenue which was related

common feature seemed (at any rate to pre-Marxian writers) to

warrant the use of a common term, capital, for money employed in
any o f the uses. But there was also an essential difference, both quali­
tative and quantitative, between the rewards obtainable from the
“passive” and “ active” uses respectively. The rewards from the “active”
uses, it came to be postulated, were essentially associated with the
employment o f wage-labour, whereas the others were not; and the
rewards from the “ active” uses were normally higher than those from
the “ passive” uses. The great question was how to incorporate all
these facts and distinctions into a kind of working model of the new
form o f society which was emerging.
The way in which Smith tackled the problem, speaking very
broadly, was this. The three basic social classes, he stated, consisted
o f those who employed their capital in “ active” uses, and who lived
by profit; those who were hired by them, and who lived by wages;
and those whose capital was embodied in land, and who lived by rent
(cf. below, pp. 53-4). Profit, wages, and rent were the three primary
forms o f income, from which all other forms o f income were ulti­
mately derived. The mobility o f capital between its two “passive”
uses resulted in the establishment of a “ natural” relationship between
the level of interest and that o f rent;1 and, more important, the
mobility o f capital between and within its three “ active” uses resulted
in the formation o f a “ natural” or average rate o f profit on the capital
employed in these uses.2 When it came to the question o f the relation­
ship between rent and interest on the one hand and profit on the other,
however, Smith based his explanation not on the mobility o f capital
between its “passive” and “active” uses, but on the facts (a) that interest
was “ derived from” or “ paid out o f” profit,3 and (1b) that rent was
essentially what was left over from the net product o f land after the
normal profit due to the capitalist farmer had been deducted.4
Turgot, in his Reflexions sur la Formation et la Distribution des Riches-
ses, tackled the problem in a manner which in one vital respect was
radically different. In Turgot’s model, as in Smith’s, the system worked

1 Wealth o f Nations, ed. E. Cannan (London, 1904), V ol. I, p. 339.

2 Subject, o f course, to differences in “ the profits
differences in “ the agreeableness or disagreeableness
security w ith w hich it is attended” ( Wealth o f Nations,
8 Ibid., V o l. I, pp. 97-9.
4 Ibid., V o l. I, p. 145.
o f different trades*’ arising from
o f the business, and the risk or
V ol. I, p. 113).
vi STUDIES IN THE L AB OUR TH EOR Y OF VALUE
through the transfer o f capital from one use to another in search of the

sphere of “ active” uses and the sphere of “passive” uses (as distinct
from transfers within each of these spheres) played little part, in Turgot’s
model they were o f the essence of the matter. Turgot laid emphasis
on the mobility of capital between all its five alternative uses, and
explained the working of the system in terms o f the manner in which
the rewards accruing to capital from these different uses, in spite o f
the fact that they were normally unequal, were nevertheless kept in
“ a kind o f equilibrium” by means of transfers from one use to
another in response to market changes. One o f the crucial results o f
this was that in Turgot’s model the gross profit which was received
by the entrepreneur who employed his capital in one o f its three
“ active” uses, and which formed part o f the supply price of his com­
modity, was normally fixed at a level just high enough to provide
compensation for the opportunity cost incurred by him in employing
his capital in the enterprise concerned rather than using it to purchase
land or lending it out at interest, plus an additional amount which
compensated him for the extra risk and trouble involved in em­
ploying his capital “ actively” rather than “ passively” and for any
special abilities he might possess.1
Turgot and Smith were both equally aware o f the importance o f the
interdependence o f economic aggregates in a capitalist economy, and
it cannot be said that Turgot’s method o f analysing this interdependence
was inherently “ better” than Smith’s, or vice versa. As the two models
stand, Smith’s embodies a more accurate and direct reflection o f the
central socio-economic relations characteristic o f a capitalist society,
and is probably better fitted to analyse the process o f development of
such a society. Turgot’s, on the other hand, lays more emphasis on
the important fact that the levels o f all class incomes are mutually and
simultaneously determined, and is better fitted to explain (for example)
why it is that the profit received from the “ active” uses o f capital is
not lowered to the level of the rate o f interest or the rent o f land by
means o f competition between the capitalists concerned.2
The importance o f all this, in relation to the subject o f the present

1 C f. m y Turgot ott Progress, Sociology and Economics (1973). pp. 23-5.

1 A ll w e find in Sm ith on this point are tw o or three very b rief and vague statements,
made m ore or less en passant, to the effect that the amount b y w hich gross profit exceeds
interest is a compensation for the “ risk” and “ trouble” involved in “ em ploying the stock’*
(cf. Wealth o f Nations, V o l. I, pp. 54 and 99).
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N vii
rather than Turgot’s. He did this, o f course, for the very best o f

the idea that class incomes were in one way or another created and
determined by competition— an idea which Turgot's line might at
first sight be regarded as aiding and abetting. But Turgot’s general
methodological approach would in fact have been quite compatible
with the specification o f the particular institutional data and class
relationships upon which Smith was concerned to lay emphasis, and
the question arises as to whether present-day Marxists may not have
something to learn from it. This is a point which I shall come back to
briefly at the end o f this introduction.

2. Marx*s Theory o f Value (i): Methodology and Alienation

Most o f the remainder of the book (chapters 4-7) is oriented around
the idea that for Marx the labour theory o f value was in essence another
way o f saying that “ the mode o f exchange o f products depends upon
the mode of exchange o f the productive forces” (below, p. 146), so
that it represented a kind o f crystallisation or embodiment o f the
methodology which he employed in his economic analysis. Chapter
4, which attempts to trace the gradual emergence o f this idea in
Marx’s early work, and to delineate the main elements o f his basic
economic methodology, therefore occupies an important place in the
book as a whole.
The second section o f this chapter, dealing specifically with the
early development o f Marx’s economic thought, includes an account
of the celebrated manuscripts on political economy and philosophy
which Marx wrote in 1844 (nowadays sometimes called the “ Paris
Manuscripts”). These manuscripts seemed to me, as I said (below, p.
135), to sum up an extremely important stage in Marx’s intellectual
development. It was in them, as everyone now knows, that Marx
expounded (1inter alia) a very interesting— if not always readily compre­
hensible— set of ideas about the “ alienation” or “ estrangement” o f
labour. After discussing these ideas at some length in my book, I
suggested (p. 138) that although Marx’s method o f treatment in Capital
was very different from that in the 1844 manuscripts, “ the gap between

In particular, “ the idea o f the product o f labour standing opposed to

the producer as an alien entity survives in the vital concept o f the
fetishism of commodities”— a concept which I discussed in some detail
in chapter 5 (pp. 174-6).
viii STUDIES IN THE LABOUR TH E OR Y OF VALUE
Interest in Marx’s ideas about alienation has been heightened in
recent years as a result o f the increasing attention which has been paid
not only to his 1844 manuscripts but also (and more particularly) to
his so-called Grundrisse, a set of notes on political economy written
in 1857-8 which for various reasons did not become generally acces­
sible in the West until the 1950s and which has not as yet become
available in a complete English translation. It is fairly evident, however,
from certain extracts which have already been translated— in particular,
from those published by Mr. David McLellan in a recent book1— and
from the interesting account of the work as a whole given a few years
ago by Mr. Martin Nicolaus,2 that the concept o f alienation plays a
more extensive role in it than many of us might have expected, and
that the Grundrisse constitutes an important link between the ideas o f
the 1844 manuscripts on the one hand and the economic doctrines o f
Marx’s Critique o f Political Economy (1859) and Capital (Vol. I, 1867;
Vol. II, 1885; Vol. Ill, 1894) on the other. As a result, some o f our
traditional notions about the part played by “ alienation” in Marx’s
mature economic work may well have to be revised.
I shall come back to this point shortly, but it will be convenient to
deal first with a rather different though closely related matter— the old
question o f whether or not Marx “ changed the plan” which he
elaborated in the late 1850s for his proposed work on economics.
The best starting-point here is Marx’s letter to Engels of 2 April 1858,
in which the plan at which he had then arrived for the proposed work
is very clearly set out. “ The whole shit” , Marx indelicately wrote, “ is
to be divided into six books: I. Capital; II. Landed property; III. Wage
labour; IV. State; V. International trade; VI. World market.” The
first of these six “ books” (i.e., main divisions o f the work as a whole),
that dealing with capital, was to consist of four sections, as follows:
A. “ Capital in general” . This was to be divided into three subsections,
namely (1) Value, (2) Money, and (3) Capital. (Other evidence3 sug­
gests that the third subsection was to be further divided into produc­
tion, circulation, and the transformation o f surplus value into profit.)
B. “ Competition, or the action o f the many capitals upon one
another.”_________________________________________
C. “ Credit, where capital appears as the general element in compari­
son with particular capitals.”
1 M arx’s Grundrisse (1971).
* New Left Review, no. 48, M arch-A pril 1968.
* Summarised b y M cLellan, op. cit., pp. 8 - n .
 I N T R O D U C T I O N TO THE SE CO ND E D I T I O N IX
D. “ Share capital as the most complete form (passing over into
Communism) together with all its contradictions.”
After the first “ book” would come the second, on landed property;
then the third, on wage labour; and finally the remaining three “ books”
on state, international trade, and the world market. The question at
issue is whether Marx subsequently changed this plan— or rather,
since it is perfectly clear that some alterations to it were in fact made,
whether he changed it radically.
Mr. McLellan, in his book on the Grundrisse, argues in effect (a)
that Marx did not “ change his plan” ; (b) that Capital was only the
elaboration o f the first o f these six “ books” ; (c) that in the Grundrisse
“Marx was led to sketch out to some extent the fundamental traits
of the other five books” ; and therefore (d) that the Grundrisse, in so
far as it is the Grundrisse of more than the first “ book” , is “ the most
fundamental work that Marx ever wrote” .1 In other words, if we want
to know what Marx would have said, had he lived to complete his
work, about landed property, wage labour, etc., the only place where
we can— and should— look is the Grundrisse, and it is in this that the
latter’s chief importance lies.
Let us concentrate on the crucial link in this chain of argument—
point (b). Now nothing is more obvious than that Capital in fact
contains a great deal about landed property and wage labour, which in
Marx’s original plan were to constitute the subject o f the second and
third “ books” of the work as a whole. And, indeed, looking at it
from the vantage-point o f Capital, nothing appears at first sight to be
odder than this original plan: how could Marx ever have contemplated
starting with a section on the subject o f capital (including the pro­
duction o f surplus value and its transformation into profit) which
abstracted from a consideration of landed property and, more par­
ticularly, o f wage labour? The answer, surely, is to be found in Marx’s
view, in his original plan, of the relation between the proposed first
“ book” and the two which were to follow. This relation is in fact
outlined fairly clearly in the very letter to Engels from which I have
just quoted. At the beginning o f Marx’s summary of his proposed
section on “ Capital in General” (“ A ” above) occurs the following
paragraph:
“In the whole of this section it is assumed that the wages of labour
are constantly equal to their lowest level. The movement o f wages
1 M cLellan, op. cit., pp. 8 - n .
X STU DIE S IN THE LABOUR THEO RY OF VALUE
and the rise or fall o f the minimum come under the consideration of
wage labour. Further, landed property is taken as = o ; that is, nothing
as yet concerns landed property as a particular economic relation. This
is the only possible way to avoid having to deal with everything
under each particular relation.”

It can reasonably be concluded from all this, I think, that Marx

originally planned to begin his work with a “ book” in which the basic
economic processes of capitalism were analysed on two specific
assumptions— viz., (i) that landed property (and therefore rent) were
non-existent; and (ii) that labour-power was bought and sold at its
value. This would then be followed by a second “ book” on landed
property in which assumption (i) was dropped and rent was brought
into the picture; and by a third “ book” on wage labour in which
assumption (ii) was dropped and the question o f “ the movement o f
wages and the rise or fall o f the minimum” was dealt with.
In the final outcome, this plan o f Marx’s was certainly “ changed” ,
although not in nearly such a radical way as some commentators have
suggested. The general framework o f Capital is indeed very similar
to that contemplated in his proposed first “ book” ; but he eventually
decided to remove the two assumptions in the course o f his analysis
within this framework rather than in two subsequent “ books” . Thus the
first part o f Volume I o f Capital is based on the assumption that
labour-power is bought and sold at its value; but this assumption is
removed, and the question o f “ the movement o f wages and the rise
or fall o f the minimum” is considered, later in the same volume. The
whole o f Volumes I and II o f Capital, again, is based on the assumption
that “landed property = o ” ; but this assumption is removed, and
rent is brought into the picture, before the end o f Volume III. So far at
least as landed property is concerned there is little excuse for not notic­
ing this “ change o f plan” , since Marx in a letter to Engels of 2 August
1862 said specifically that he now intended after all “ to bring the theory
of rent already into this volume” ; and in a letter to Kugelmann of 6
March 1868 he said that property in land would be one o f the subjects
dealt with in the “ second volume” .1 Is there really very much doubt,
then, that when Marx said in a letter to Engels o f 15 August 1863 that
he had had “ to turn everything round” , these alterations were what he
was mainly referring to?
1 M arx at that tim e, shortly after the publication o f V olu m e I o f Capital, still en­
visaged that the w h o le o f the material w hich was eventually to be published m Volum es
II and III w o u ld in fact appear in one volum e— the “ second” .
 I N T R O D U C T I O N TO THE SE CON D E D I T I O N XI
If my interpretation is correct, it follows that the chief importance
o f the Grundrisse must
well in the end be found to lie, I suspect, in the fact that from the
perspective of this work— to. use Mr. Nicolaus’s words— “ the often
apparently ‘technical’ obscurities o f Capital will reveal their broader
meaning” ,1 or, as I would prefer to put it, the sociological under­
pinning o f some o f the “ technical* arguments which Marx developed
after the 1850s2 will become clearer. It is evidently also important,
however, because it would appear to be the first work in which Marx
elaborated his theory o f surplus value (on the basis o f the vital distinc­
tion between labour and labour-power); and last but not least because,
as I have already noted' above, the concept of alienation played a
more important role in it than might perhaps have been expected in
Marx’s writing at that time.3
With reference to the latter point, Marx’s use o f the concept o f
alienation in some of the passages which Mr. McLellan has translated
from the Grundrisse is very interesting indeed; and in the light o f these
passages I would certainly wish, were I rewriting my book today, to
amend and expand the sentence on p. 138 below dealing with the
connection between the ideas o f the 1844 manuscripts and the doctrines
of Capital. What is o f particular interest here is the manner in which
Marx in the Grundrisse analyses commodity production as such— the
“ second great form” of society, as he calls it, which according to his
account arises out o f and eventually replaces the first form, based on
“ relationships o f personal dependence” . The “ universal nature” o f
commodity production, Marx writes, “ creates an alienation o f the
individual from himself and others, but also for the first time the
general and universal nature o f his relationships and capacities” . In
other words, commodity production creates the conditions for the
arrival o f a third form o f society, which will be “ founded on the
universal development of individuals and the domination o f their
communal and social productivity” .4 In the light o f these (and other)
passages from the Grundrisse, I think I would now wish to argue that
Capital, in a very real and important sense, is in fact a book about

1 Nicolaus, op. cit., p. 60.

2 I am thinking here in particular o f cert
o f surplus value into profit, and to the famous reproduction schemes, w hich M arx
described to Engels in letters dated respectively 2 A ugust 1862 and 6 July 1863.
3 If it should turn out that the Grundrisse contains m ore on “ State” , “ International
trade” , or “ W o rld m arket” than Capital does, it w ill o f course be important on that
account as well.
4 M cLcllan, op. cit., pp. 67-71.
 STUDIES IN THE LABOUR TH EO RY OF VALUE
alienation— or, to be more precise, about two different but closely
interrelated types of alienation between which it is important to
distinguish.
The first type of alienation is that just mentioned, which is associated
with commodity production as such. Marx’s basic idea here, speaking very
broadly, is that as the social division o f labour is extended, and as
commodity production develops, gradually dissolving and eventually
replacing relations of personal dependence, human labour takes on the
two-fold character o f concrete (or utility-producing) labour, and
abstract (or value-producing) labour. In its latter capacity, which it assumes
only when society has entered a particular historical stage, labour
becomes “ a means to create wealth in general” , and ceases to be “ tied
as an attribute to a particular individual” .1 All products and activities,
as Marx puts it in the Grundrisse, then disintegrate into exchange
values,2 and “ the individuals are subordinated to social production,
which exists externally to them, as a sort o f fate” .3 In such a situation,
Marx writes,

“ The social character o f activity, and the social form o f the

product, as well as the share of the individual in production, are
here opposed to individuals as something alien and material; this does
not consist in the behaviour o f some to others, but in their subordina­
tion to relations that exist independently of them and arise from the
collision of indifferent individuals with one another. The general
exchange of activities and products, which has become a condition of
living for each individual and the link between them, seems to
them to be something alien and independent, like a thing.” 4

Thus “ the social relations o f individuals . . . appear in the perverted

form of a social relation between things” ,5 and the social action o f
producers “ takes the form of the action o f objects, which rule the
producers instead o f being ruled by them” .6 In Capital, it is true, as
distinct from the Grundrisse, Marx does not specifically use the term
“ alienation” in his analysis o f this state of affairs— or at any rate I have
not been able to find any passage in which he makes such a use o f it.
But in his account o f “ the fetishism o f commodities” , which occupies

2 M cLellan, op. cit., p. 65. C f. also ibid., p. 73.

3 Ibid., p. 68. 4 Ibid., p. 66. 5 Critique, p. 34.
* Capital, V o l, I, p. 75. C f. ibid., pp. 80-1: “ These form ulae [concerning the relation
between the value o f com m odities and the labour em bodied in them] . . . bear stamped
upon them in unmistakable letters, that they belong to a state o f society, m w h ich the
process o f production has the mastery over man, instead o f being controlled b y h im .’*
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N x iii
a strategic position at the end of the opening chapter on commodities

talking about is this first type o f “ alienation” .

The second type of alienation, which eventually arises out o f the
first, exacerbates it, and becomes as it were superimposed upon it, is
that associated with the specific socio-economic institutions o f capitalist
commodity production. Here there is no need to go back to the
Grundrisse for documentation: there are more than enough references
in Capital itself. Under capitalist commodity production, as Marx puts
it, the worker’s labour is “ alienated from himself by the sale o f his
labour-power” , and is “ realised in a product that does not belong to
him” ;1 capital becomes “ an alien power that dominates and exploits
him” ;2 capital and land together are “ alienated from labour and con­
front it independently” ;3 and all means for the development o f
production “ estrange from him [the worker] the intellectual potentiali­
ties o f the labour-process” .4 Once again Marx’s main general discussion
of this second type o f alienation in Capital is placed in a strategic
position— at the end o f Volume III, immediately before the last
unfinished chapter on classes; and once again his analysis o f it is
closely associated with the concept o f fetishism— in this case not the
fetishism o f commodities as such, but the fetishism o f capital and land.5
The whole point of Capital, however, is that Marx is there concerned,
not so much with lamenting the existence o f these types o f alienation,6
but rather with stripping away the “ mystical veil” 7 which hinders
their existence (and importance) from being fully recognised. To expose
this fetishism, Marx believed, one had to penetrate below the “ estranged
outward appearance o f economic relationships” 8 to the underlying
economic relationships themselves. But it was not enough to do this,
as it were, qualitatively, or sociologically: since under commodity
production the “ social relation between things” which reflected the
underlying “ social relations of individuals” took the form o f a price or
value relation, the job had to be done quantitatively as well. It was here,
of course, that Marx’s version o f the labour theory o f value, in its
capacity as a theory o f price in the traditional sense, came into the
picture. Under commodity production as such, this theory says in

1 Capital, V oL I, pp. 570-1. 2 Ibid., V ol. I, p. 571.

* Ibid., V o l. Ill, p. 804. 4 Ibid., V o l. I, p. 645.
6 See in particular Capital, V o l. Ill, pp. 803-10; and cf. ibid., pp. 383 ff., w here the
fetishism o f interest-bearing capital is discussed.
8 “ W h a t avails lamentation m the face o f historical necessity?” (Capital, V ol. I, p. 595).
7 Capital, V o l. I, p. 80. 8 Ibid., V ol. Ill, p. 797.
x iv STUDIES IN THE LABOUR THEOR Y OF VALUE
effect, the price relations between things reflect production relations

quantities o f labour the men embody in their commodities. Under

capitalist commodity production, these price relations between things
are modified, but the modification is itself a reflection of the change
which has occurred in the production relations between men, and is
quantitatively determinate. With the aid o f the labour theory of value,
Marx believed, one could show that it was precisely through the
working o f the price mechanism, competition, and the “law of value**
that the two basic types of alienation arose and persisted.
There was indeed, then, an important link between Marx*s theory
o f value and his concept o f alienation. To say that a thing possessed
value in exchange was the same as saying that it was the product o f
somebody’s labour in a commodity-producing society, and that its
producer was therefore alienated “ from himself and others’*. To say
that the equilibrium price o f a thing diverged from its value in the
way described in Volume III o f Capital was the same as saying that it
was the product o f labour in a capitalist commodity-producing society,
and that its direct producer was therefore confronted by capital as an
“ alien power” . But these “ moral” connotations do not, I think, make
Marx’s theory o f value, in its capacity as a theory o f the determination o f
the relative prices o f commodities, any the less objective— or “ scientific” ,
if one wishes to use my own rather question-begging term. Were I
rewriting today the passage at the top o f p. 129 below, I would
certainly want to make it clearer that Marx’s “ vision” included not
only a “ principle o f causation” but also a “ moral” attitude towards
certain of the phenomena which were caused; but there is not very
much else that I would wish to alter. I would still wish to deny that
Marx’s theory o f value actually embodied any particular ethical or politi­
cal viewpoint, while emphasising at the same time its close association
with the materialist conception o f history— and, as I would now wish
to add specifically, with the concept o f alienation.
So far as the last section of chapter 4 is concerned— that dealing
with Marx’s economic method— there is once again little that I would
actually wish to take back, although some o f the points will be found

book, which represents a later view. Provided that the reader does not
get the idea from pp. 146-8— as he might well be excused for doing—
that Marx wrote Capital just to test a hypothesis, I do not think he
will be too seriously misled by this section as it stands. The distinction
 I N T R O D U C T I O N TO THE SE CON D E D I T I O N XV
between the two senses o f the term “ relations o f production” on pp.

And I still think I was right in laying special emphasis on Marx’s

“ logical-historical method” (pp. 148-9): indeed, i f anything I think I
underestimated the extent to which Marx’s economic work was
guided by it.1 And there is one related point which I might perhaps
have brought out more clearly in this context. In so far as Marx’s
logical transition in Capital (from the commodity relation as such to
the “ capitalistically modified” form o f this relation) is presented by
him as the “ mirror-image” o f a historical transition (from “ simple”
to “ capitalist” commodity production), Marx’s procedure becomes
formally similar to that o f Adam Smith and Ricardo, who also believed
that the real essence o f capitalism could be revealed by analysing the
changes which would take place if capitalism suddenly impinged upon
some kind o f abstract pre-capitalist society (see below, pp. 303-4).
The major difference between Marx’s analysis in this respect and that
o f Smith and Ricardo— a difference to which I now feel that I have not
hitherto given sufficient attention— is that whereas for Smith and
Ricardo the “ early and rude state of society” which they postulated
was not only pre-capitalist but also in a sense pre-historic, for Marx
the system o f “ simple commodity production’’ which he postulated
was the historically prior form o f a definite stage in the development
o f society— the stage o f commodity production in general, or as such.
The coming o f capitalism, therefore, while it certainly brought about
the replacement of “ simple” by “ capitalist” production relations, did
so within the general framework o f commodity production as such.
Indeed, as Marx said in Capital, “ the mode o f production in which the
product takes the form o f a commodity . . . is the most general and
embryonic form o f bourgeois production” .2 To understand capital­
ism, therefore, Marx was in effect saying, and in particular to dispel
the illusions about its character which were implicit in Classical
political economy, one must understand first and foremost that it is
a particular type o f commodity-producing society. If we are looking for
the main reason why Marx “ starts with values” , and why, having
“ transformed” them into prices o f production, he still insists that the

1 I m ight have been m ore seized o f its importance— and com plexity— i f I had at that
time read Lenin’s “ Philosophical N otebooks” . See Lenin's Collected Works, V ol. 38 (1961),
pp. 178-80 and 319-20.
* Capital, V o l. I, p. 82.
xvi STUDIES IN THE LABOUR TH EO RY OF VALUE

Marx’s version of the labour theory of value consisted essentially

of a set or sequence o f causal propositions concerning the qualitative
and quantitative connections between production relations and ex­
change relations under commodity production in general and capitalist
commodity production in particular. In chapter 5 of my book, I
attempted to explain what these propositions in fact were and the
reasoning which underlay them. There is not very much in the
chapter which seems to me to be actually wrong, but if I were rewriting
it today I would wish to make a number o f alterations and additions.
The first-point concerns the general layout o f the chapter, which I
now feel may have hindered some readers from seeing the wood for
trees. Were I rewriting the chapter, I would wish to adopt something
more like the order o f treatment employed on pp. 304-11 o f the
essay appended at the end o f the book. The summary of Marx’s theory
o f value given there is rather too formalised and schematic to stand on
its own, but the three successive logical-historical stages o f Marx’s
analysis are more clearly delineated and distinguished than they are in
chapter 5 o f the book. In particular, the distinction between the two
stages o f Marx’s analysis o f capitalist commodity production is brought
out more clearly. The important fact here is that in the first o f these
two stages, when competition among capitalists is assumed to exist
within each industry but not as yet between different industries, and
commodities are assumed still to sell “ at their values” , differences in the
organic composition o f capital in different industries are necessarily
associated with differences in the rate o f profit. It is not the case, I
believe, as is sometimes suggested, that in this stage o f his analysis
Marx assumed that the organic composition o f capital (and therefore
the rate o f profit) was everywhere the same.
Second, I would now be rather more critical o f certain aspects o f
Marx’s treatment of the quantitative side o f the value problem. If
Marx in fact meant what I believe he meant by the passages quoted on
pp. 159-60 below, he should surely have said so more specifically. His
treatment o f the skilled-unskilled labour problem (below, pp. 167-73),

and there seems little doubt that he underestimated the importance of

the problem. Similarly, his failure to get down to the “ transformation
problem” , after approaching it directly three times (below, pp. 192-3),
cannot be entirely ascribed to the fact that he did not live to work over
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N x v ii
Volume III again: part o f the explanation, I now feel, must be that
once again he did not fully appreciate the importance o f the problem.
It is no answer to these criticisms to say that Marx was more concerned
with (and interested in) the qualitative side: possibly he was, but while
this may explain his failure to tie up these loose ends on the quantitative
side it does not completely excuse it. Any theory o f value, whatever
else it may be called upon to do at the same time, must surely provide
a determinate explanation o f the relative equilibrium prices o f com­
modities, and to the extent that it falls short o f doing so it must be
open to criticism.
Third, I would want to say something more about Marx’s application
o f the theory o f value to the problem o f the determination o f the value
of labour-power (below, pp. 183-6). While this part o f his analysis
may have been perfecdy plausible when applied to capitalism in its
competitive stage (with which Marx himself was o f course primarily
concerned), it seems to me to be very much less plausible when applied
to contemporary capitalism, particularly in situations where a strong
trade union can enforce a rise in wages and a strong monopolistic
employer can pass on this increase in wages to consumers by raising
prices. I am unconvinced by the attempts of some modern Marxists to
get out o f this by redefining “ the value o f labour-power” so that it
becomes equivalent, in effect, to any wage which the workers happen
to be getting.1
Fourth, I would want to say something more about the Classical
assumption o f constant returns to scale to an industry as a whole
(under given technical conditions), which apparently underlay Marx’s
view that prices were determined independently o f demand. The unit
price o f a commodity, he freely acknowledged, would be determined
by “ sociaily-necessary labour” — i.e., by the quantity o f labour required
under the prevailing technical conditions to produce a unit o f it— only
if the total quantity o f labour devoted to the production of the com­
modity, and therefore the total output o f the commodity, corresponded
to the “ social need” for it. But in his view it did not follow from this
that “ social need” (or demand, or utility) entered into the determination
of unit prices, because he assumed that when “ social need” changed, and
output was appropriately adjusted, there would be no change in
“ sociaily-necessary labour” as defined above and therefore no change
in the unit price (below, pp. 178-9; and cf. also pp. 35, 74, and 162).
The question is simply whether the latter assumption corresponds
1 C f. m y Economics and Ideology, pp. 118-19.
XVU1 STUD IE S IN THE L A B O U R THE ORY OF VALUE
closely enough to reality. If it does, well and good; but if it does not,
what should one do about it? Should one argue that although “ socially-
necessary labour” may in fact vary with demand, there is still some
fundamental sense in which it can be said to determine prices at any
given level o f demand? Or should one grasp the netde and bring
demand specifically into the picture? I shall be saying a little more
about this problem below.
Fifth and finally, I would want to say quite a lot more about the
so-called ‘‘transformation problem” , partly because (like Marx him­
self) I tended to underestimate its importance, and partly because a
number o f interesting new contributions have been made in this field
since I wrote my book. Since some o f the points which have arisen in
the course o f the recent discussions are very relevant to the question
o f what present-day Marxists ought to do about the labour theory o f
value, it may be useful if I try to summarise the basic issues in a way
which will make them as accessible as possible to the non-mathematical
reader.1
Let us start again, then, more or less from the beginning, with the
following very simple value schema in three departments:

c v s a
I 20 + 80 + 80 = 180
II 50 + 50 + $0 = 150
III 80 + 20 + 20 — 120

Here c, v, and j have their usual meanings; and a represents simply

c + v + s — i.e., the total amount of past and present labour embodied
in the output o f the department or industry concerned. As usual, the
exploitation ratio ^ is assumed to be the same ( = 1 in this illustration)

in each industry; but the organic composition of capital is assumed

to be different in each, being lower than, equal to, and higher than
the “ social average” in industries I, II, and III respectively.
Marx’s method o f transforming the values into prices was to share

1 I shall assume in what follow s that the reader has already had a lo o k at the account
on pp. 193-7 b elo w , and that he therefore understands the general nature o f the trans­
form ation problem and the m eaning o f th e main symbols usually em ployed in its solution.
In the n ew exposition w hich follow s in this introduction, how ever, it w ill be convenient
to use the sym bols p lt p 2, and p 3 for the price-value coefficients instead o f (as in the text
o f the book) x , y, and z.
 I N T R O D U C T I O N TO THE S E C O N D E D I T I O N xix
out the total amount o f surplus value produced in the economy (150
in our example) among the three industries, in accordance with the
ratio which the capital employed in each industry (c + v) bore to the
total capital employed in the economy as a whole [L(c + v)]. In the
present illustration, since the ratio ^ ^ ls in each case equal to £,

each industry receives J o f the total amount o f surplus value— i.e.,

50— in the form o f profit. This 50 profit is added to the 100 capital
employed in each industry to form, in each case, a “price o f production”
o f 150. Thus the equilibrium price o f the product o f industry I turns
out to be e o f its value; that of the product o f industry II to be equal
to its value; and that o f the product o f industry III to be 1J times its
value. These prices bring the rate o f profit in each industry out at \
(i.e., 50 /o)*
In order to link this up with the subsequent work we shall be
discussing, let us describe this operation in a rather different way.
What Marx in effect did, we could perhaps say, was to set up and solve
a system o f simultaneous equations of the following general form:

Ci + «>i + r(ci + <>i) = " i P i ..........(1)

C2 + v2 + r(C2 + ~ a2P 2 (2)
C3 + v 3 + r(c3 + v3) = a3p 3 ..........(3)
r[£(t + i>)] = E ( Z v ) ----- (4)

Here the subscripts 1, 2, and 3 relate to the three industries I, II, and
III respectively; p v p 2, and p 3 are the coefficients by which al9 a2, and
a3 have to be respectively multiplied in order to transform them into
the appropriate prices o f production; r is the rate o f profit, assumed
to be the same in each industry; and E is the uniform exploitation
s
ratio -. Equations (1), (2), and (3) represent the original value schema
in its “ transformed” price form; and equation (4) expresses the con­
dition that the sum o f the profits should be equal to the sum o f
the surplus values. There are four unknown quantities— p v p 2,
p z, and r; and on the basis of our four equations we can readily obtain
solutions for them in terms o f the known quantitites— the c*s, the i/s,
the a*s, and E. From equation (4), the rate o f profit r is obviously equal

“ ž f + V ™ 1 in the case of any particular industry— let us call it

industry “j ”—
XX STUDIES IN T HE L A BO UR T H E O R Y OF VALUE

[-11 E w '
Z (c 4 - vL
fa + vi)
ff ---

Substituting the values for the cs, the t/s, the a s, and E in our original
numerical illustration, we naturally get the same results as we did
before: p x works out at I, p 2 at i, p z at i£, and r at £ (i.e., 50 %).
If we had had only equations (1), (2) , and (3) at our disposal, the
best we could have done would be to obtain a solution for the ratio
o f the three p s— i.e., for p x : p 2: p 3. In order to obtain a solution for
p x, p 2, and p 3 in absolute rather than relative terms, and also a solution
for r, we clearly need a fourth equation. Marx’s equation (4), expressing
the condition that the sum o f the profits should be equal to the sum of
the surplus values, is quite adequate for this purpose, at any rate from
a formal point o f view. And in the present case it would have amounted
to exactly the same thing if we had used instead o f this an equation
expressing the condition that the sum o f the prices should be equal to
the sum o f the values, since this would merely have involved adding
the same quantity— Z (c + v)— to both sides o f (4).
To make the meaning o f the solution clearer, and to pave the way
for what follows, it may be useful at this stage to bring money into
the picture. To say that the price o f the output o f industry I is f o f its
“ value” — i.e., t o f the total amount o f labour-time embodied in it—
appears at first sight to be meaningless, since prices are customarily
expressed in terms of money, and not o f labour-time. To give meaning
to it, let us begin by assuming that before the transformation, when all
commodities exchanged strictly in accordance with the quantities of
labour embodied in them, they were always bought and sold for some
given sum o f money— £2, say— per unit of the labour-time o f which
they were the product. The application o f the three coefficients t, 1,
and 1J to the respective values o f our three products, it may be argued,
will then yield their prices in terms o f this given sum o f money.
Thus the money price of output I will be t.180.^2 (— £300); o f
output II, 1.150. £ 2 (= .£ 300); and o f output III, ij.120.^2 (=^300).1
This method is simple enough, but since it begs a number of ques-
tions it may be thought preferable to bring money into the picture in
a different way— by assuming that it is one o f the commodities
included in our basic schema. Let us assume, for example, that the
1 If w e did not have a fourth equation, and therefore k n ew only that the ratio o f the
three coefficients was f the three prices w o u ld ob viou sly be indeterminate.
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N xxi
commodity gold, which we suppose to be the sole monetary medium,
>our-time (past and
present) employed in this industry produces, say, three gold sovereigns.
The money price o f the total output o f industry III will then be £360,
and this price will clearly be the same both before and after the trans­
formation. Suppose, then, that for equation (4) in our system we
substitute
Pz = 1

The system will once again be determinate, and solutions for r, p v

and p 2 can readily be obtained. In our example, r will be 5 (i.e., 20 %),
p x will be f, and p 2 will be f . The application of the three coefficients
f, 5 , and 1 to the respective values o f the three products will then give
us their prices in terms o f the sum of money represented by the product
of one unit of labour-time in the gold-producing industry. Thus the
money price o f output I will be i.180.^3 (— £360); o f output II,
i 150. £3 (=£360); and o f output III, 1.120.^3
Bearing this in mind, let us now pass to the “ transformation prob­
lem” proper, which arises because Marx’s method transforms only
the values of output into prices, leaving the elements o f input in un­
changed value terms. This is clearly inadequate. Suppose, for example,
that we assumed that industry I produced capital goods, industry II
workers’ consumption goods, and industry III capitalists’ consumption
goods. This would mean that the coefficient p lf applied in Marx’s
method only to the output alt would also have to be applied to clt c2,
and c3; and that the coefficient p 2, applied in Marx’s method only to
the output a2, would also have to be applied to vlf v 2, and i/3. The main
question originally raised about this by certain critics of Marx was
whether, under such circumstances, the necessary transformation could
in fact be carried out— i.e., whether the relevant relations and con­
ditions could be expressed in the form o f an equational system which
was mathematically determinate.
The simplest way o f showing that they can in fact be so expressed
is to begin with a “ transformed” schema consisting o f the three
following equations:

1 I f w e had assumed that industry II (the one w ith an organic composition equal to
the social average) was the gold-producing industry, m aking p 2 — 1 instead o f p z, the
three coefficients w o u ld o f course w o rk out at f , i, and i£ , as they did before, and the
m oney price in each case w o u ld w o rk out at £ 4 5 °.
x x ii STUDIES IN T HE L AB OUR T H E O R Y OF VALUE
CiPi + v ip2 + + ViPi) = al P l ------(iA)
r (ciP i
c iP l v tP t 1 "I VtPt)
r{ftP . . . . (^A)
C3P 1 + + rfaPi + ‘'aj’*) = <»aPs------(3A)
Comparing these equations with (i), (2), and (3) on p. xix above, we
see that the coefficient p x has now been duly applied not only to a1
but also to the three c s, and that the coefficient p 2 has been similarly
applied not only to a2 but also to the three v s .1 Since there are four
unknowns (plf p 2, p 2, and r), these three equations alone do not get
us very far: it is easy to show that they enable us to find r, and the
ratio p x:p2i but nothing more. To make the system fully determinate,
we need, as before, a fourth equation. Now there are, as we have al­
ready seen, three possible candidates here:
(i)r[2 (c + v )]= £ (£ v )
(expressing the condition that the sum o f the profits should be equal
to the sum o f the surplus values2)
(ii) axpx + a2p 2 + azp 2 — ax + a2 + a 3
(expressing the condition that the sum o f the prices should be equal
to the sum o f the values)8
M Pj = i
(expressing the fact that one o f the industries— industry “j ” — is
assumed to be the gold-producing industry)
For fairly obvious reasons, it is no longer a matter o f indifference
whether we use (i) or (ii): except in special cases, the answers we get
will differ according to which of these two we choose.4 M y own
feeling is that out o f (i), (ii), and (iii) the one Marx himself would
have wished to use is (ii); but at any rate from a formal point o f view
any one o f the three is just as good as any other. Whichever we choose,
we will be able to get determinate solutions for the unknowns,
although the relevant formulae will naturally be much more complex
than those on pp. xix-xx above.
1 T h e first to appreciate that the basic equations could be framed in this relatively
simple form was W in tem itz, in his June 1948 Economic Journal article. C f. b elow , p. 196,
w here (as I should have explained m ore clearly) W in tem itz’s S lP S8, and S 8 in the price
schema represent the profits. W in tem itz’s contribution m ight not have been possible
w ithout the pioneering efforts o f B ortkiew icz, o f w hich I perhaps tended to be too
critical in m y account (see below , p. 196).
* T h e c’s and i/s on the left-hand side o f the equation w ill n o w o f course have to be
expressed in price terms.
3 This is the one w hich W in tem itz used in his solution.
4 O r, to put the same point in another w ay, it is n o w impossible (except in special
cases) to obtain a solution in w hich the sum o f the profits is equal to the sum o f the surplus
values and (at the same time) the sum o f the prices is equal to the sum o f the values.
 I N T R O D U C T I O N TO THE SE CON D E D I T I O N x x iii
Once this method of solution had been propounded, the question

industries in our schema be restricted to three? And why should it be

assumed that the ultimate use o f each product in the economy was
invariable and predetermined by its industry o f origin? Francis Seton,
in a justly famous article in the Review o f Economic Studies for June
1957, showed that “ the most general n-fold subdivision of the economy,
in which each product may be distributed among several or all possible
uses is equally acceptable— and easily handled— as a premiss for the
required proof” (op. cit., p. 150). Seton began by representing the
structure o f the economy in an ingenious schema (in value terms),
similar to the well-known Leontief input-output matrix, and then
showed in effect that this system o f value flows could be uniquely
transformed into price terms— provided, of course, that the physical
amounts of each input which entered into the production o f each
output were assumed to be known, and provided also (if one wished
to determine the absolute prices, as distinct from the price ratios) that
some “ postulate of invariance” was chosen. What the latter condition
amounts to is that some aggregate or characteristic o f the value system
which is to remain invariant to the transformation into prices has to be
selected. This “ postulate o f invariance” plays the same kind of role in
Seton’s solution as the “ fourth equation” plays in the other two
solutions we have discussed, and may be chosen from the same three
candidates as before (above, p. xxii). Since, according to Seton, there
is no objective reason for selecting any one of these candidates rather
than any other, the solution to that extent falls short of complete
determinacy, but it is nevertheless quite adequate to provide an
affirmative answer to the particular question originally raised by the
critics of Marx.
But this, unfortunately, is not the end of the matter, as a number o f
post-Seton contributions (notably an article by Professor Samuelson
in the Journal o f Economic Literature for June 1971)1 have clearly demon­
strated. The question now at issue, speaking very broadly, is this:
what happens to the labour theory o f value when it has been “ rescued”
from its critics in the manner elaborated for us by Wintemitz and
Seton? Is it still legitimate for a modern Marxist to use a model which
starts with values and surplus values, as Marx’s did? And even if it is
formally legitimate, is it really necessary? Could he not just as well
1 This article contains an exhaustive bibliography covering all the recent contributions
to the debate.
x x iv STUDIES IN THE L ABO UR T HE OR Y OF VALUE
use a model which started with prices and profits— assuming o f course

those social and economic relationships which as a Marxist he con­

sidered important? Or could he perhaps use a model which started
with neither prices nor values, but with physical commodities?
In order to deal with these problems, let us first ask ourselves why
it was, exactly, that Marx started with values and surplus values and
then “ transformed” these (in the third stage of his analysis) into prices
and profits. To a non-Marxist economist, unaccustomed to the idea
that a theory o f value may be given qualitative as well as quantitative
tasks to perform, Marx’s procedure is bound to appear quite irrational.
Since from a formal point o f view one could just as readily start with
prices and profits and “ transform” them back into Marxian values
and surplus values, what justification is there for doing the job in the
reverse direction— or, indeed, for doing it at all?1
Marx felt himself justified in tackling the problem in the way he
did for two closely associated reasons. In the first place, as we have
already seen (above, p. xv), he believed it was important to emphasise
that capitalist production was a form o f commodity production. The
first distinguishing characteristic o f capitalism, Marx wrote, is “ the
fact that being a commodity is the dominant and determining charac­
teristic of its products” .2 One’s analysis ought therefore to begin with
the commodity as such, and then proceed from this to the “ capitalisti­
cally modified” commodity— this logical transition being regarded as
the “ corrected mirror-image” o f a historical transition from simple
commodity production to capitalist commodity production. Thus,
since the qualitative task o f the labour theory was to show how
relations o f exchange were determined by relations o f production, one
ought to begin by showing how the broad relations between men as
producers o f commodities determined exchange relations under simple
commodity production (Stage i — values). One should then proceed
to show how this process of determination was modified as a result o f
the emergence of capitalist relations o f production. Since the emergence
of these relations was primarily dependent upon the emergence o f
labour-power as a commodity, and since the labour-capital relation

the latter relation as such (Stage 2— values and surplus values), in

abstraction from certain market phenomena, belonging historically to
a later period, which disguised the fundamentally exploitative character
1 Cf" ^imnplcrkn nn t i t nn 1
* C~'/tnif/t W *1 TTT n 8 err
 I N T R O D U C T I O N TO THE SE CO ND E D I T I O N XXV
of this relation. Eventually, however, these market phenomena must
obviously be brought into the picture, and one should then (but only
then) proceed to Stage 3— prices and profits.
In the second place, Marx was very much concerned to combat
what he called the “ illusions created by competition” , and in particular
the idea that “ wages, profit and rent are three independent magnitudes
of value, whose total magnitude produces, limits and determines the
magnitude o f the commodity-value.” 1 Again and again Marx went
out o f his way to attack the then-prevalent notion that it was sufficient
to say that the levels o f wages, profit, and rent were determined “ by
competition” , or “ by supply and demand” . There must surely be
postulated, he believed, some prior concrete magnitude, or set o f
magnitudes, which as it were preceded these class incomes and limited
their total sum. This prior concrete magnitude, he argued, could only
be constituted o f the value o f commodities.2 Given the value o f the
finished commodities produced in the economy, and given the value
of the commodities used up as means of production in order to produce
them, the limit o f the sum of class incomes was determined by the
difference between these two given quantities o f value. If the level o f
the average wage were taken as given, therefore, the limit of the sum
o f all other class incomes was necessarily determined. Thus although
competition certainly brought about an average rate o f profit on
capital, competition did not create profit: the average had to be an
average o f something, and the magnitude o f this “ something”— aggre­
gate surplus value— was independent o f competition. Once again,
therefore, it appeared that the proper order o f treatment was to go
from Stage 1 (values) to Stage 2 (values and surplus values), and from
there to Stage 3 (prices and profits).
Given Marx’s particular preoccupations, his view as to the role or
roles which ought to be assigned to a theory o f value, and the economic
and mathematical techniques which were available to him, this way o f
tackling the problem still seems to me to be perfecdy defensible.
With the final solution o f the transformation problem, however, some
o f Marx’s particular propositions in Volume III of Capital become
more vulnerable to criticism than they were before, while at the same

open up.
1 Capital, V o l. Ill, p. 841.
* C f. Capital, V o l. Ill, p. 841: “ In reality, the com m odity-value is the m agnitude
w hich precedes the sum o f the total values o f wages, profit and rent, regardless o f the
relative magnitudes o f the latter.”
xxvi STUDIES I N THE L A B OU R T H E O R Y OF VALUE
The point is that the theory o f price (and income) determination

differs in certain very important respects from the one with which we
started. In the value schema o f Stage 2, the exchange relation between
any pair o f commodities A and B appears as a direct reflection o f the
production relation between the producers o f A and B respectively,
and is quantitatively determined in accordance with the respective
amounts o f labour embodied by these producers in their commodities.
The relative prices o f the two commodities depend solely on the con­
ditions of production in the two industries concerned: given the level
o f wages and the exploitation ratio, nothing which happens anywhere
else in the economy can affect these prices at all, and it is quite plausible
to think o f the level o f profit in each industry as being limited by—
and in a sense determined subsequent to— the price o f its product.
With the solution o f the transformation problem in Stage 3, however,
we arrive at a situation in which the relative prices o f any pair of
commodities can and will be affected, often in a substantial way, by
things which happen elsewhere in the economy, and in which the
overall pattern b f relative prices and the average rate o f profit are
mutually and simultaneously determined. Marxian “ values” can still
be spoken of, if one wishes, as the “ ultimate determinant” o f prices,
but only in the sense that the known quantities in the equations are
expressed (or expressible) in terms o f embodied labour— a sense which
is rather more attenuated than that implied in Marx’s own statement
to the effect that “ the price o f production is not determined by the
value o f any one commodity alone, but by the aggregate value o f all
commodities” .1 Then again, Marx’s proposition that “ the level o f the
rate o f profit is . . . a magnitude held within certain specific limits
determined by the value o f commodities” 2 now has to be very care­
fully qualified: in particular, it can not be taken to imply either that
the sum o f the profits will necessarily be equal to the sum of the surplus
values (unless o f course we decide to use this equality as our “ fourth
equation” ), or that prices and profits are not in actual fact mutually
and simultaneously determined.
The question arises, therefore, as to whether the really important

fact be said in a less exceptionable way through the adoption o f an

alternative approach. Suppose, for instance, that we accept Marx’s
basic idea that we ought to start with what I have called above “ some
1 Capital V o l. III, p. 202. 2 Ibid., V o l. Ill, p. 838.
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N XXvii
prior concrete magnitude” , but that we select for this purpose not the
value of the commodities concerned but the commodities themselves. To
take a very simple example, let us assume that we have a two-industry
capitalist economy (wheat and cloth) in which a total o f 100 workers
are employed. In the wheat industry, inputs of 10 units of wheat plus
20 units o f cloth plus the direct labour o f 50 workers produce 100 units
of wheat. In the cloth industry, inputs o f 20 units o f wheat plus 30
units of cloth plus the direct labour o f 50 workers produce 100 units
o f cloth. W e start, then, with the following simple schema expressing
the conditions o f production:

10 wheat + 20 cloth + 50 labour -* 100 wheat

20 wheat + 30 cloth + 50 labour -* 100 cloth

Let us assume that the real wage (in commodity terms) per head, which
we take as given, is f o f a unit o f wheat plus I o f a unit of cloth. Total
real wages are thus 40 wheat plus 40 cloth. Since the total commodity
inputs are 30 wheat and 50 cloth, this means that out o f the aggregate
output o f 100 wheat and 100 cloth, there remains a surplus o f 30 wheat
and 10 cloth for the capitalists.1
Now let us transform this physical schema into price terms. Let pw
be the price o f a unit o f wheat, and pc the price o f a unit o f cloth.
The wage per head in price terms will then be f (pw + pc). Let the
rate o f profit, assumed to be the same in both industries, once again
be r. The price schema will then look like this:

[10^ + 20pc + 5ol(pu, + /0](i + r) = ioopw

[20pw + 30pc + SoMPw + iO](i + r) = 100pc

To determine the three unknowns p w, pc, and r we obviously need a

third equation, so let us simply assume that cloth is the standard in
which prices are expressed and write

Pc = 1

The system then immediately simplifies to

(30Pu, + 40) (1 + r) = 100pw

U°Pw + 5o) (1 + r) = 100
1 It w ill be noted that i f w e adopt this m ethod o f expressing the conditions o f pro­
duction, it is only the surplus produced over the economy as a whole (as distinct from that in
each industry) w hich can be unam biguously defined at this stage.
XXVU1 STUDIES IN THE LA B O U R T H E O R Y OF VALUE
which yields the solution p w = 0.781, and r = 0.231, or 23.1 %. The

everything “ adds up” correctly; that the wages paid to the workers
are just sufficient to enable them to buy the 40 wheat and 40 cloth
which we set aside for them; and that the profits received by the
capitalists are just sufficient to enable them to buy the surplus o f 30
wheat and 10 cloth.1
It will be seen that this kind of model, even in the very simple form
in which I have just presented it, bears a strong family resemblance
to the “ Marxian” transformation models about which I have been
speaking above. Both types o f model are based on the idea that one’s
analysis ought to start with some “ prior concrete magnitude” which
in one way or another limits the levels o f the different forms o f class
income. Both o f them, again, embody the notion that an explanation
o f prices and incomes must be sought primarily in the conditions o f
production rather than in the conditions o f demand. And both of
them, finally, involve the mutual and simultaneous determination o f
prices and profits in an equational system which expresses these con­
ditions of production in price form. In the final section o f this intro­
duction I shall elaborate these points, with particular reference to the
commodity production model put forward by Sraffa in i960.

4. The Critique and “ Reapplication * o f the Marxian Labour Theory:

The Sraffa System
Chapter 6 of the book, dealing with the critique of Marx’s version
o f the labour theory, does not seem to me to require very much up­
dating. If one is going to criticise a thinker like Marx, it is even more
important than it usually is in such cases that one should do so for the
right reasons; and most o f the critics whose work is considered in this
chapter still appear to me to have done so, in the main, for the wrong
reasons. Nor, to my knowledge, have any o f the more recent critics
of the labour theory— apart from some o f those who have concerned
themselves with the transformation problem— added anything that is
really new to the critiques o f their predecessors. Thus, except for the
overly apologetic passage on p. 202 and the somewhat tortuous style
of parts o f my account, there is not much that I would really want to
alter substantially today. I would, however, wish to reformulate
1 Since the values for the unknowns are given to three decimal places only, these sums
w ill not o f course w o rk out exactly.
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N x x ix
certain passages (e.g., those on pp. 215 and 229) in which it is suggested

implication o f some o f these statements as they stand is that one must

necessarily start with some kind o f theory o f value (preferably the
Marxian theory), and then work up from this, as it were, to a theory o f
distribution. I no longer believe that this is correct. It is certainly true
that if one is going to formulate a theory o f distribution one must
get the relevant prices from somewhere; and it is also true, I believe,
that one should properly start with some kind o f “ prior concrete
magnitude” which limits the levels o f class incomes. But, as has been
suggested above and will be shown in more detail below, the “ prior
concrete magnitude” may be conceived in commodity terms rather
than in value terms; and it is possible to erect on this basis a theoretical
system, not essentially different from Marx’s, in which prices and in­
comes are mutually and simultaneously determined.
The only other point o f substance in connection with chapter 6
relates to my comments on the critiques o f Lange and Schlesinger,
which now seem too harsh. Whatever else may be said o f their contri­
butions, they did at any rate pose certain important questions which
must be answered in one way or another by contemporary Marxists.
Lange’s critique, for example, raised in a particularly sharp way the
question o f whether or not an “ institutional datum” can in fact be
legitimately “ tacked on” to a more general theory (p. 229). And
Schlesinger’s critique, besides identifying correctly the major diffi­
culties inherent in the Marxian labour theory, raised in an equally
sharp way the question o f whether Marxists today need necessarily try
to explain the pattern o f prices directly in terms o f “ the assumed
substance o f economic relations” (p. 232).
The final chapter o f the book, which I optimistically entitled “ The
Reapplication o f the Marxian Labour Theory” , begins with a section
on the so-called “ marginal revolution” which contains a rather im­
portant error o f interpretation. I am not referring here to anything in
the purely historical part o f the narrative, which does not seem to me
to require very much amendment— although I no longer think that
the emphasis placed by the founders o f “ marginal utility” economics
on the scarcity problem was in fact quite as great as I made out, or
that it can be quite so easily explained,1 and I would today wish to
bring out more clearly certain positive elements (connected in par-
1 In particular, I think I w ould wish to w ind dow n the kite w hich I flew in the first
tw o sentences on p. 249.
XXX STUDIES IN THE L A B OU R T H E O R Y OF VALUE
ticular with modem welfare economics and the economics o f social­
ism) which were implicit in many o f the early “ marginalist” formu­
lations. 1 The error I am speaking o f is contained in the categorisation
of general equilibrium theory on pp. 253-6. Here I was misled by the
apologetic use to which I conceived that Walras had put his theory,
and by subsequent attempts to express it in a form which would be
independent o f any “ institutional datum” at all, into treating the
general method which underlay it as if it represented a kind o f relapse
into pre-scientific enquiry. To put the point in another way, I tended
to argue as if the only possible type of valid causal statement in value
and distribution theory was one which started with some kind o f
“ independent determining constant” and proceeded from there to the
final conclusion by means of a simple uni-directional “ catena of causes” .
To solve the problem of value by expressing the conditions of the
mutual interdependence o f economic quantities in the form o f a
mathematically determinate system of equations, I suggested (p. 254),
was to solve it only in a purely formal sense— i.e., not to solve it at all.
As I now see it, however, a system of equations in which the unknowns
one is interested in are mutually and simultaneously determined may
be framed in such a way as to involve a clear statement of the order
or direction o f determination, and may indeed embody a principle
of causation o f a higher type than that embodied in a simple “ catena
o f causes” . This confession o f error, however, should definitely not
be taken to imply that I would wish to alter the general views about
neo-classical value and distribution theory which I expressed, however
imperfecdy, in this section o f the book.
The next section, on the operation o f the “law o f value” under
socialism, bears more distinct marks of the particular period in which
it was written, and of the particular controversies which were then
taking place, than any other part o f the book. The argument largely
revolves around Stalin’s work on Economic Problems o f Socialism in the
U .S .S .R ., the appearance of which in 1952 had a liberating effect
whose nature and extent it may possibly be difficult for younger
readers to appreciate; and, as the curious and sadly over-optimistic
“ stop press” passage on pp. 282-4 will indicate, the writing of the
section was concluded just at the time when the Twentieth Congress
o f the Soviet Communist Party, at which Khrushchev’s famous
denunciation o f Stalin was delivered, appeared to open up a whole
1 C f. m y article on “ M arxism and M arginalism ” in History o f Political Economy, V ol.
4, N o . 2, Fall 1972.
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N XXXI
number of hopeful new perspectives. Thus this section is the product

it were half off and half on.

For all that, there do not seem to me to be many actual errors o f
substance in the section as it stands, however “ historically relative”
its selection o f issues and style o f writing may appear today. I would
not wish to alter the interpretation o f Marx’s theory on pp. 256-62;
and the ideas and events described in the following pages will, I am
sure, still be seen as important by future historians o f the economic
thought o f the period. But they are likely to be seen as important in a
new context, which is only occasionally hinted at in my account as
it stands— that of the gradual disentanglement o f the theory of socialist
planning from the original Marxian theory o f value. There are three
more or less separate issues here, which tended to be confused in the
controversies described in the book, and which still tend to be con­
fused in similar controversies today.
The first issue relates to the question o f the applicability or otherwise
o f the Marxian (and Classical) concept of “ economic law” in a planned,
fully socialist economy. For Marx, as for Smith and Ricardo, an
“ economic law” embodied some kind o f objective necessity which
imposed itself upon society, as it were, elementally and autonomously
— as a by-product, certainly, o f the conscious actions o f millions o f
individual economic agents, but not as the result o f any preconceived
human design. Here I would myself feel that as central planning de­
velops in a socialist economy, the range o f applicability o f this concept
o f “ economic law” is bound to become smaller and smaller. For
example, it will surely become less and less plausible to describe as
“ economic laws” all those objective economic conditions and relations
o f which planners must take proper account if they are to avoid getting
into a mess. Even now, it seems rather unhelpful to describe as an
“ economic law” the necessity which planners are under to secure some
kind o f (unspecified) balance or proportion between different branches
o f the economy.
The second issue relates to the question o f the extent to which
prices in a socialist economy are in fact governed by the elemental

“ law of value” in Marx’s sense. Here I still feel that Stalin’s method o f
approach to this problem— via the original Marxian concept o f
“ commodity production” and the fact o f the existence of a collective-
farm sector— makes good sense. Certainly, at any rate, it makes much
x x x ii STUDIES IN THE L AB OUR TH EO RY OF VALUE
more sense than the method o f approach adopted by those more

and sold are “ commodities” and that the “law o f value” therefore
necessarily applies to them.
The third issue relates to the question of whether the “ law of value” ,
in some sense or other, is useful as a guide to action when it comes to
fixing prices in a socialist economy. M y own feeling here is that while
Marx’s generalisations about the “ balancing o f useful effects and
expenditure o f labour” are certainly relevant as a framework of
discussion in connection with the problem o f pricing under socialism,
these generalisations have very little to do with his “ law o f value”— as
he himself often enough emphasised. Thus those economists who, like
Novozhilov, try to generalise Marx’s theory o f value so as to make it
describe not only how prices are autonomously determined under
simple and capitalist commodity production but also how they ought
consciously to be fixed under socialism, seem to me to be barking
up the wrong tree— however ingenious their efforts may be, and
however they may help in making the principles o f rational pricing
appear more palatable to planners who have been brought up on
Marxian theory.
The final section o f the book— the one dealing direcdy with the
question of the “ reapplication” of the law of value to the monopoly
stage o f capitalism— now seems to me to be open to criticism, in par­
ticular, on the grounds that (apart from one or two incidental remarks)
it deals with the question o f price-determination more or less in
abstraction from the question o f income-determination. And although
I would still wish to maintain that there is nothing essentially wrong
with the type o f enquiry outlined in this section, I would now wish
to urge that this enquiry should be conducted within a rather different
conceptual framework— that provided by Sraffa in his Production o f
Commodities by Means o f Commodities. In what remains of this intro­
duction, therefore, I shall try to outline the Sraffa system— or, rather,
to show how certain basic elements of this system could conceivably
be adapted and used by modern Marxists. M y demonstration will
take the form o f a sequence o f five Sraffa-type models, linked by a

W e begin, as Sraffa himself does, with a model o f a very simple

1 I should emphasise right at the beginning o f this exposition, as I shall also do at the
end, that m y o w n account differs to a certain extent, both in orientation and in content,
from that given b y Sraffa himself. In particular, Sraffa in effect skips out m y second and
third models.
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N XXXiii
subsistence economy which produces every year just enough to

only three industries which produce wheat, iron, and pigs respectively.
In the wheat industry, 240 quarters o f wheat, 12 tons o f iron, and 18
pigs are used as inputs to produce an annual output o f 450 quarters
o f wheat. In the iron industry, 90 quarters o f wheat, 6 tons o f iron, and
12 pigs are used as inputs to produce an annual output o f 21 tons o f
iron. And in the pig industry, 120 quarters o f wheat, 3 tons o f iron,
and 30 pigs are used as inputs to produce an annual output of 60 pigs.1
The commodity inputs, we assume, include not only means o f pro­
duction but also subsistence goods for the workers who are employed
in each industry.2 Thus we have the following overall input-output
situation in physical terms— i.e., in terms o f commodities:
240 qr. wheat + 12 t. iron H- 18 pigs —►450 qr. wheat
90 qr.wheat + 6 t. iron + 12 pigs —»• 21 t. iron
120 qr. wheat + 3 t. iron + 30 pigs —►60 pigs
It will be noted that the total inputs o f the commodities are exacdy
equal to their total outputs: for example, a total o f 450 qr. wheat is
used up in production in the three industries taken together, and 450
qr. o f wheat is produced each year by the wheat industry.
When exchange begins after the harvest, the wheat producers are
going to have 450 qr. wheat in their hands, 240 qr. o f which has to be
earmarked for the following year’s input. Thus if the production o f
wheat is to continue at the same level in the following year, the prices
o f wheat, iron, and pigs must be such that 210 qr. o f wheat will
exchange for the other required elements o f input— viz., 12 1. iron
plus 18 pigs. Similarly, turning to the iron industry, 15 t. iron must
be able to exchange for 90 qr. wheat plus 12 pigs; and, turning finally
to the pig industry, 30 pigs must be able to exchange for 120 qr.
wheat plus 3 t. iron. Thus, if we call the price o f a quarter o f wheat
p w, the price o f a ton o f iron p h and the price o f a pig ppi we can readily
translate our physical schema into price terms as follows:
240^ + izpi + 18pp = 450pw
90p w + fy j + ™Pi = 2 lPi
120p w + i Pi + 30pp = 6 opp

1 This m odel is taken from Sraffa, op. cit., p. 3.

* In this respect the m odel differs from that on p. x x v ii above, and also from the fifth
m odel considered on pp. x x x v iii-ix b elow , in both o f w hich the quantity o f direct
labour em ployed in each industry is represented explicitly.
XXxiv STUDIES I N THE LA B O U R TH EO RY OF VALUE
It will be clear that the first o f these equations in effect expresses the
condition that prices must be such that 210 qr. wheat will exchange for
12 1. iron plus 18 pigs; and similarly for the other two equations. There
are three unknowns here (pw, p {, and pp), and three equations. But
since when we add the equations together the same quantities appear
on both sides, any one o f the equations can be deduced from the sum
of the others, so that we in fact have only two independent equations.
If we want the absolute prices, then, we need a fourth equation. Let us
therefore take one o f the commodities— iron, say— as the standard o f
value, and put
p{ = 1

The system of equations then becomes determinate, and elementary

algebra gives us values o f 0.1 and 0.5 for p w and pp respectively.
In order to generalise this, let us now suppose that there are k
industries, whose respective commodities we label “ đ” , . . ., “ k” ;
that A is the quantity annually produced of ‘ V ’, that B is the similar
quantity of “ 6” , and so on; that A a, Ba, . . ., K a are the quantities of
“ a” , “ 6” . . ., “ k ” used as inputs by the industry producing A , that
A * B bi . . ., K b are the corresponding quantities used by the industry
producing B, and so on; and that p a, pb, . . ., p k are the unit prices for
“ a” , “ 6” ,. . ., which will enable production to be carried on from
year to year at the same level. W e will then have the following system
of k equations:

A P a + B aPb + • ■ • + K aPk = A p a
A P a + A P b + - - - + KbPk ~ BPb

A P a + A Pb + ■- • + KkPk — KPk

Although we have k equations here, there are clearly only k — 1 indepen­

dent equations, so once again, in order to solve for the k unknowns
(Pa* Pb* * * ■
»Pk)* we need another equation. As before, let us take one
of the commodities— say — as the standard of value, and put

Pi ^ 1
The system obviously then becomes determinate.
This first model, if one wishes, can be taken to represent an elementary
form o f Marx’s “ simple commodity production” . And it is fairly
easy to show that under the assumed circumstances the prices o f the
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N XXXV
different commodities will, as in Marx’s model, be proportionate to
the different quantities of labour which have been directly and in­
directly employed to produce them. For if, as we are assuming here,
there is no form o f income other than the “ wages” accruing to the
direct producers, all input-costs ultimately reduce to “ wage”-costs.
This means that the price o f each end-product will be equal to the
sum o f its inputs at their “ wage” -costs, which implies, if wages per
head are assumed to be uniform over the economy as a whole, that
price ratios will be equal to embodied labour ratios.1
Another point of some importance should be noted before we
proceed to the second model. Sraffa is primarily concerned in his book
with the analysis of the properties o f an economic system in which
production continues year after year without any change in the scale
of any industry or in the proportions in which inputs are combined to
produce its product.2 Thus the prices in the model we have just
considered can be regarded as springing directly and exclusively from
what Sraffa calls “ the methods of production and productive consump­
tion” , or, for short, “ the methods o f production ' .3 If, however, one were
concerned with the analysis o f a more dynamic economy in which
changes in scale were frequently taking place, and if these changes in
scale were associated with significant changes in the proportions in
which inputs were combined (i.e., if returns to scale were not constant),
it would not o f course be possible any longer to abstract from demand
in this way.
Let us now pass to the second “ logical-historical” stage o f our
analysis, and to the second model Suppose that the economy we have
been considering becomes capable of producing more than the mini­
mum necessary for replacement. For example, starting from the three-
industry case which we considered on p. xxxiii above, suppose that
the situation changes to the following:

240 qr. wheat + 12 t. iron + 18 pigs -> 600 qr. wheat.

90 qr. wheat + 6 t. iron + 1 2 pigs 31 t. iron.
120 qr. wheat + 3 t. iron + 30 pigs 80 pigs.

There is now a surpluso f 150 qr. wheat, 10 t. iron, and 20 pigs, over
and above what Ricardo called “ the absolutely necessary expenses o f

1 For a simple illustration, see m y Economics and Ideology, p. 167, footnote 20. For a
more rigorous demonstration, see Sraffa, op. cit., pp. 12 and 89.
2 Sraffa, op. cit., p. v. 3 Ibid., p. 3.
XXXvi STUDIES IN THE L ABO UR T HE OR Y OF VALUE
production” , which is available for distribution. Let us assume that
there is as y et no capitalist class in existence, so that this surplus is
shared out among the direct producers, whose “ wages” are now
raised above the subsistence level which we supposed them to be at in
the first model. If there are, say, 100 direct producers in all, each will
receive an addition o f qr. wheat plus t. iron plus 5 o f a pig to his
former subsistence “ wage” . W e may now make out a new schema in
physical terms, adding this accretion to real “ wages” to the appropriate
items on the left-hand side. If 40 o f the producers are employed in
the wheat industry, 30 in the iron industry, and 30 in the pig industry,
the amended schema will be as follows:

300 qr. wheat + 16 t. iron + 26 pigs -> 600 qr. wheat

135 qr. wheat + 9 t. iron + 1 8 pigs -> 31 t. iron
165 qr. wheat + 6 t. iron + 36 pigs -> 80 pigs

With this change in the “ methods o f production” , a new set o f prices

will now emerge. If we translate the physical schema into price terms,
and, as before, put pf= 1,1 we will get values o f 0.097 and 0.498 for
p w and pp respectively. The new price ratios will still be equal to the
(new) embodied labour ratios, for the same reason as before. If we
wish, we can take this second model as representing a more advanced
form o f Marx’s “ simple commodity production” , alluded to as a
possibility by Marx himself in a passage in Volume III o f Capital,2
in which the workers produce a surplus which they themselves receive.
The “ rate o f profit” — i.e., the ratio o f this surplus to the “ capital”
employed— will under such circumstances normally be different in the
case o f each industry, but since the workers will still think o f their
income as a reward for their labour rather than as a return on the
“ capital” they happen to employ, this difference in the “ rate o f profit”
will, as Marx puts it, be “ immaterial” , and there will be no tendency
for the difference in the “ rate o f profit” to be ironed out through the
migration o f “ capital” from one industry to another.
Since the generalisation o f this model involves nothing new, we
can proceed at once to the third model, in which we assume that a
class o f capitalists appears for the first time on the historical scene.

1 W e need a fourth equation here because, as before, the same quantities appear on
both sides w hen w e add the equations together, so that there are in fact only tw o indepen­
dent equations.
* Pp. 174-6.
 I N T R O D U C T I O N TO THE SE C O N D E D I T I O N XXXV11
Let us suppose that three separate groups o f capitalists emerge, each

enterprise, reducing the wages o f the direct producers to their former

subsistence level, and appropriating the whole of the surplus as profit.1
If we imagine that we are examining the immediate effects o f this
take-over— i.e., the effects which are experienced before competition
between the three groups of capitalists and the migration of capital
from one industry to another equalise the rate o f profit on capital—
it is easy to see that there will be no alteration whatever in the relevant
quantities in the physical schema of our second model. The wage
element in the inputs on the left-hand side will certainly be reduced to
its former level, but this will be exactly balanced by the inclusion o f
the new profit element. Thus the prices o f the commodities will
remain the same as before, and price ratios will still be equal to em­
bodied labour ratios. The rate o f profit, however, will differ from one
industry to another. If we wish, we can regard this model as analogous
to that used by Marx in Stage 2 o f his analysis, where commodities are
assumed to sell “ at their values” and the rate of exploitation is
assumed to be the same in each industry, but where the rate of profit
(except in the special case in which all capitals are o f the same organic
composition) differs from one industry to another.
W e may now proceed immediately to the fourth model, in which
we assume that as a result o f competition between the three groups
of capitalists, and the consequent migration o f capital from one
industry to another, the rate o f profit is equalised over the economy
as a whole. W e now have to revert to the physical schema on p. xxxv
above. If we again call the rate o f profit r, this schema in price terms
will appear as follows:

(240pw + 12pi + i8pp)(i + r) = 6oopw

( 9opw + 6Pi + i 2Pp)(i + r ) = 31Pi
(i20Pu, + 3Pi + 10Pp)(i + r ) = 80pp

The three equations are now all independent, but since we have four
unkowns (pw, p h pp, and r) to be determined, instead o f only three as
1 W e assume, as M arx did at the corresponding point in his analysis, that capital
subordinates labour on the basis o f the technical conditions in w hich it finds it, w ithou t
im m ediately changing the m ode o f production (cf. Capital, V o l. I, pp. 184 and 310). W e
also assume, rather less realistically, that in the first instance capitalists in each industry
reckon on receiving as profit, in real terms, exactly w hat they have caused the w orkers
in that industry to lose. In the wheat industry, for exam ple, they reckon on receiving enough
profit to enable them to purchase 60 qr. w heat plus 4 t. iron plus 8 pigs.
XXXV1U STUDIES IN THE LABOUR T H E O R Y OF VALUE
before, we once again need a fourth equation. Putting = i as we
previously did, the system immediately becomes determinate, and
values o f o . i i , 0.56, and 0.36 (= 36%) for p w, ppi and r are fairly
readily obtained. The new price ratios, o f course, now diverge from
the embodied labour ratios, but they can still be said to be determined
by the fundamental methods or conditions o f production.
To generalise this, we use our previous notation and arrive at the
following system o f k equations:1

iAaVa + BaPb + • • • + K apk)(i + r) = A p a

(A bPa + BbPh + - - - + K bPk)( 1 + r) = Bpb

iAkPa + B kPb + • • • + K kPk)(i + r) = K p k

All the k equations are independent, and, if we take one o f the com­
modities (‘7 ” ) as the standard o f value and put pj = 1 as before, we
have enough equations to determine the fe— 1 unknown prices and the
rate of profit r. It will be clear that the transition from the previous
model to this one is analogous to the transition involved in the solution
of the Marxian “ transformation problem” .
W e pass now finally to the fifth model, in which we assume that the
workers have combined and forced the capitalists to return to them
some o f the surplus. Wages will now include not only what Sraffa
calls “ the ever-present element o f subsistence” 2 (which is constant),
but also a share o f the surplus product (which is variable).3 Analytically
speaking, what ought one to do about this? The most appropriate
thing to do, Sraffa suggests,4 would be to separate the wage into its
two component parts, continuing to treat the commodities required
for the subsistence of the workers as means of production along with
the seed, iron, etc., and treating the variable element in the wage as
part of the surplus product o f the system. Sraffa, however, largely for
the sake of convenience,5 treats the whole o f the wage as variable— i.e.,
as part o f the surplus product. This means that the quantity o f labour
employed in each industry now has to be represented explicitly in our
1 Sraffa, op. at., pp. 6-7. 2 Ibid., p. 9.
3 In his discussion o f “ T he General L aw o f Capitalist A ccum ulation” in V olu m e I o f
Capital, M arx in one place envisages a situation in w hich the demand for labourers
exceeds the supply, so that “ a larger part o f their o w n surplus-product . . . comes back to
them in the shape o f means o f paym ent” (p. 618).
4 O p cit., pp. 9-10.
6 A n d also, as he says (p. 10), in order to “ refrain . . . from tampering w ith the tradi­
tional w age concept” — i.e., the concept o f the w age as a variable share in “ value added” .
 I N T R O D U C T I O N TO THE SE CO ND E D I T I O N x x x ix
statement of the conditions o f production,1 taking the place of the
corres >us state-
ments, and that profits have to be reckoned as a percentage o f the total
of the prices o f the means of production excluding wages.2 If we use
the symbols L a, L b, . . ., L k for the annual quantities o f direct labour
employed in the industries producing A , B, . . K , and the symbol w
for the wage per unit o f labour (assumed to be the same in all industries),
the system o f equations in generalised form will appear as follows:3

(A ap a + B apb + . .. + K ap k) (i+ r) + L aw = A pa
i^bPa + B bp b + ... 4 -K bpk) (i+ r) + L bw = Bpb

{ \ P a + BkPb + ••• + KkPk) i 1+ r) + L ku> = Kpk

Here there are k independent equations,and k + 2 unknowns (the k

prices, r, and w). Instead of, as before, taking one of the commodities
as the standard o f value and setting its price equal to unity, Sraffa
(again for the sake o f convenience) takes the total surplus or net
product of the system as the standard and sets its price equal to unity,
so that instead of the familiar additional equation pj = I we have the
following :4

[A — (A a + A b + . . . -j- A k)]pa -f- [B — (Ba + B h -\- ■ + Bk)\Pb +

. . . + [ K ~ ( K a + K b + . . . + K k)]pk = I

We now have k + i independent equations, but since there arc k + 2

unknowns the system is still not determinate. The important point,
however, is that if cither w or r is known, the system will immediately
become determinate. In particular, if we know what the wage (w) is,
the rate of profit and all the prices will be determined.
Before going on to discuss the implications o f this series o f five
models, I should once again make it clear, as I have already done
above,5 that this account diverges somewhat from Sraffa’s. The
historical side of my “ logical-historical” analysis is something o f a
glqss on Sraffa; and I have included the second and third models

closely a sequence o f Sraffa-type models may be made to mirror

1 As it was in the m odel on p. x x v ii above.
2 Sraffa emphasises (op. cit.. p. 10) that “ the discussion w hich follow s can easily be adapted
to the m ore appropriate, i f unconventional, interpretation o f the w age suggested above” .
8 O p cit.. p. 11. * Op. cit.. p. 11. 5 P. xxxii, footnote.
xl STUDIES IN THE LABOUR T HE OR Y OF VALUE
Marx’s own sequence. Marx, o f course, did not deal (except in occa­
sional incidental remarks) with the situation represented in the fifth
model; but the first and second models, taken together, can be regarded
as corresponding to Marx’s analysis of simple commodity production
(Stage i), the third model to his preliminary analysis o f the origin and
appropriation o f surplus value (Stage 2), and the fourth model to his
analysis o f prices and profits (Stage 3). What I have tried to do, in
effect, is to show how a modem Marxist might reformulate and
develop Marx’s original theory, taking as his “ prior concrete magni­
tude” not the “ values” o f the commodities concerned but the com­
modities themselves.
Sraffa himself proceeds to develop the analysis, on the basis of the
fifth model described above, by giving the wage (1w) successive values
from 1 to 0 — a wage of 1 representing a situation in which all the net
product goes to labour (i.e., a situation in which there is no class of
capitalists and no profit), and a wage of o representing the other
extreme in which none of the net product goes to labour (i.e., a situation
in which there is a class o f capitalists which manages to secure all the
net product for itself in the form o f profit).1 Sraffa’s main task here is
to demonstrate what happens to prices and the rate of profit as the
wage is reduced from 1 to o. The key to the movement o f prices lies
here, as Ricardo was the first to make clear,2 in “ the inequality of the
proportions in which labour and means of production are employed
in the various industries” .3 As an integral part o f this analysis, Sraffa
formulates the notion o f a “ standard commodity” (to take the place
of the one hitherto arbitrarily chosen as a standard) which would not
rise or fall in value relative to any other commodity when wages rose
and fell, and which would therefore be capable o f “ isolating the price-
movements o f any other product so that they could be observed as in
a vacuum” .4 The details o f this ingenious construction need not con­
cern us here, but an interesting analogy between Sraffa’s procedure
and Marx’s in this connection is worth noting. One o f the conclusions
which Marx drew, on the basis o f a model like the one on p. xviii above
in which the organic composition o f capital in one of the industries
is equal to the “ social average” , was that (when wages were taken as
given) the average rate o f profit, and therefore the deviations o f price
ratios from embodied labour ratios in the system as a whole, were
1 These meanings o f the tw o extrem e situations fo llo w from the fact that the value
o f the net product is n ow being taken as the standard in w hich the w age, as w ell as the
k prices, are expressed.
* C f. below , pp. 103 ff. 3 Sraffa, op. cit., p. 12. 4 Ibid., p. 18.
 I N T R O D U C T I O N TO THE SE CON D E D I T I O N xli
governed by the ratio o f direct to indirect labour in this “ average”
industry. But Marx’s conclusion, at best, could only be a provisional
and approximate one, since in reaching it he had abstracted
from the effect which a change in the wage would have on the prices
of the means of production employed in the “ average” industry.
What Sraffa really does in this part o f his analysis is to show that the
same results can be achieved, without abstracting from this effect at
all, if we substitute his “ standard” industry for Marx’s industry o f
average organic composition o f capital.1
There are a number o f other aspects o f Sraffa’s analysis which ought
to be of considerable interest to Marxists— for example, his incorpora­
tion of land and rent into the general system; his treatment of “ basic”
and “ non-basic” products, which raises once again the important
question, discussed in particular by Bortkiewicz, as to whether the
conditions of production of luxury goods enter into the determination
of the price-relations o f other products and the rate o f profit; and
above all, perhaps, his exercise in the reduction o f the means o f
production, hitherto expressed in physical terms, to quantities of
labour. In the latter connection, he shows in effect that this reduction
operation can in fact be performed— enabling us, if we wish, to start
with labour instead of with commodities— provided that the labour is
dated labour, since the dating will clearly affect the rate o f profit and
therefore the prices o f the commodities concerned. And o f at least
equal interest is the critique o f the neo-classical theory o f value and
distribution which is implied in the system as a whole.2
The main difference between Marx’s system and the one just
outlined lies in the methods they respectively employ to secure
determinacy. Marx’s Volume I models (corresponding roughly to the
first, second, and third models described above) are determinate
because with the aid of the labour theory o f value determinacy is
secured, as it were, in each industry separately. Marx’s Volume III
model (corresponding to the fourth model described above) is deter­
minate because it involves nothing more than the addition of certain
magnitudes which are predetermined in the case of each separate
industry and the reallocation o f the total o f these magnitudes among
the different industries in proportions which are also
Marx was o f course aware that there were important interrelation­

1 O n this w ho le question, see m y Economics and Ideology, pp. 175-8.

2 O n this latter aspect, sec M aurice D ob b, “ The Sraffa System and Critique o f the
Neo-Classical T h eo ry o f Distribution” (De Economist, 118, N R . 4, 1970, pp 347-62).
x lii STUDIES IN THE LABOUR T HE OR Y OF VALUE
ships between elements o f input and elements o f output over the
economy as a whole— as witness his interest in Quesnay s Tableau
£conomique, and his Volume II reproduction schemes which constituted
in a sense his own version o f the Tableau. But he did not hit on the
idea that the postulation o f specific input-output interrelationships
could help to make prices*and incomes determinate. His Volume III
model, indeed, seems to have been based on the assumption that none
of the commodities concerned entered as inputs into the production
of any of the others. The Marxian “ transformation problem” , how­
ever, as we have seen, cannot be properly solved without the postula­
tion, in one form or another, o f specific input-output interrelationships.
And once the “ transformation problem” had in fact been solved on
this basis, the idea was bound to arise that this method of helping to
secure determinacy could be applied not only in the final stage o f the
analysis but in the earlier stages as well. All o f the five SrafFa-type
models described above postulate certain specific, technically fixed,
input-output interrelationships, and all o f them involve the mutual
and simultaneous determination o f the unknowns on the basis o f these
interrelationships.
In all this, it is true, the Marxian “ labour theory o f value” as such is
pushed into the background, in the sense that its specific quantitative
propositions emerge, as it were, only as by-products o f the main
analysis. But our SrafFa-type sequence o f models does essentially the
same.set o f jobs which the Marxian labour theory was designed to do;
it starts, as Marx’s system did, with a “ prior concrete magnitude”
which limits the levels o f class incomes; it is based on the same view
about the order and direction of determination o f the variables as
Marx’s system was; it is just as well suited to the application o f a
“ logical-historical” method o f approach; and it has the great additional
advantage that it contains a built-in solution o f the “ transformation
problem” . And on the qualitative side, it is at least arguable that SrafFa’s
procedure reflects the basic idea which Marx was trying to express in
his labour theory— the idea that prices and incomes are ultimately
determined by relations of production— more clearly and effectively
than Marx’s own procedure did.
In ronnertion with the latter point, there is one particular aspect of
SrafFa’s system which will no doubt already have struck the reader
and which requires comment. It relates to the fact that in the fifth
model, where it is assumed that wages include not only “ the ever­
present element of subsistence” but also a variable share of the surplus
 I N T R O D U C T I O N TO THE SE CON D E D I T I O N x liii
product, the system is indeterminate. So far as the earlier models are
concerned, no really serious difficulties about the determinacy o f class
incomes are likely to arise. In the first model, “ wages” are necessarily
confined to subsistence by virtue o f the relatively primitive economic
conditions which are postulated. In the second model, “ wages”
necessarily absorb the whole o f the surplus because there is assumed to
be no capitalist class to appropriate it. In the third and fourth models,
wages can reasonably be assumed to be kept at subsistence level by
the operation o f some kind o f “ Marxian” mechanism, and the origin
of “ surplus value” (or profit) can be plausibly explained on that basis.
In the fifth model, however, the division o f class incomes, at least as
Sraffa’s system stands, is left indeterminate— a fact which may be
regarded by some as constituting a defect, but which should more
properly be regarded, I think, as providing an opportunity and a
challenge. What is required, in order to complete the system, is some
kind o f ordered explanation o f the factors determining the division o f
class incomes in the monopoly stage o f capitalism. Here a whole host
of difficult problems arises which I am not competent even to formu­
late, let alone to resolve. But the main methodological questions involved,
I suppose, relate to (d) the choice between wages and profits as the
independent variable; (h) the scope of the explanation— i.e., whether it
is to be regarded as something complete in itself or merely as something
which is as it were superadded to Marx’s theory; and (c) the manner
in which the explanation can be made to reflect— as Marx himself
would have insisted— the socio-economic relations characteristic o f the
new stage.
In conclusion, two other points which may be o f some importance
should be mentioned. The first is related to the difference described
above (pp. v-vi) between Smith’s model of the economic system and
Turgot’s— the point being, as I there said, that Marx’s procedure in
this respect was modelled on Smith’s rather than on Turgot’s. When
one reads what Marx has to say in Capital about the relation between
profit on the one hand and rent and interest on the other, one is struck
by the fewness o f the occasions on which he alludes even indirectly to
the mobility of capital between its “ active” and “ passive” uses. The
concept o f the mutual and simultaneous determination o f profit, rent,
and interest is virtually non-existent, and one is never quite sure why,
exactly, the rate of profit is not reduced by competition to the level of
the rate o f interest (or to that of the rate of return on capital invested
in land-purchase). If this is regarded as an important problem, the only
x liv STUDIES IN THE LABOUR T H E O R Y OF VALUE
adequate way of dealing with it, from the formal point of view, would
be to extend the system of equations, thereby moving rather further
towards a general equilibrium system o f the Walrasian type.1
The second point relates to the question o f the constancy or other­
wise o f returns to scale. The Sraffa system, as we have seen, can provide
an excellent framework for the analysis o f “ such properties o f an
economic system as do not depend on changes in the scale o f produc­
tion or in the proportions of ‘factors’ ” .2 If, however, we happen to
be interested also in those properties o f an economic system which do
depend on such changes, we would seem to have no option but to
extend the system further in order to include a set o f demand equa­
tions. Such a procedure would not mean selling the pass if “Marxian”
factors were clearly postulated as underlying the demand equations,
and if the system as a whole were made to embody appropriate
indicators o f the order o f determination of the variables. Here, then,
is yet another problem for those who are anxious to use “ Marxian”
categories and methods o f analysis to throw light on the monopoly
stage o f capitalism. Hie Rhodus, hie salta!

1 SrafFa can perhaps be said to have paved the w ay here b y bringing differential rent
(but not w hat M a rx called “ absolute” rent) into his system.
2 Sraflfa, op. cit., p. v.
 PREFACE
HIS book really owes its origin to a long correspondence

T on certain matters o f economic theory which the author had

in 1951 with Mrs. Joan Robinson. In our discussion we found
ourselves returning again and again to the question o f the validity
o f the labour theory o f value, and it soon became clear that the main
hindrance to mutual understanding between us was the wide differ­
ence between our respective views on this question. The correspon­
dence ended with each o f us giving the other up as more or less
hopeless, but I was left with the uncomfortable feeling that my
failure to convince Mrs. Robinson that the labour theory was good
sense and good science was my fault rather than hers. Surely it must
be possible, I thought, to build some sort o f bridge between Marxian
economists and their non-Marxian colleagues so that the latter can
at least be made to see what the former are trying to get at.
This book, then, was originally intended as an attempt to provide
such a bridge. I felt that the adoption o f a genetical approach to the
labour theory might help: if one showed how it had evolved—
not only over a historical period but also in the minds o f individual
economists like Smith, Ricardo and Marx— its general character
and the nature o f the job it tries to do might emerge rather more
clearly. M y aim was to try to persuade sincere but sceptical non-
Marxian economists that the intellectual quality o f the labour theory
o f value, and indeed o f Marx’s economic teaching as a whole, had been
seriously underestimated by most o f those on whose works they had
been brought up.
As the book proceeded, however, another aim distinct from
though related to this began to come into prominence. It was clearly
necessary, if I was to fulfil my task properly, to show not only that
the labour theory was good science in Marx’s time but also that it
is good science today. And this raises certain issues o f great importance
and difficulty. The point is that capitalism has not stood still since
the time when Marx wrote: it has developed into what Marxists
call its imperialist or monopoly capitalist stage, in which the economic
processes which go on differ in certain important respects from those
which went on in the old capitalism which Marx knew and analysed.
In the new situation which has arisen, certain long-accepted Marxian
8 STUDIES IN THE L ABO UR T H E O R Y OF VALUE
economic laws no longer operate, or at least operate in new ways.

differs in this way from the system which existed a century ago,
is still capitalism, and that the basic categories o f Marx's economic
analysis are the key to the proper understanding o f the new situation
as well as o f the old. But we can hardly hope to persuade others that
we are right unless we ourselves actually do the job o f reapplying
these basic categories to the new situation, and deduce the laws o f
the processes o f capitalism in its present stage just as convincingly
as Marx did in the case o f the stage in which he himself lived. And
this is a job whose importance we have been slow to recognise—
largely, no doubt, because we have tended to be over-optimistic about
the probable duration o f the monopoly capitalist period.
Within the limits o f the field I had mapped out for myself it was
fairly clear what had to be done in this connection. Marx had developed
the labour theory of value in the context o f a given set o f problems
and a given stage in the development o f capitalism. The essence o f
what he said had to be disentangled from this context and reapplied
to the present-day situation, taking account o f everything that was
new. It seemed to me that if this could be done in relation to the labour
theory o f value, which played such a vitally important part in Marx’s
analysis, the task o f reapplying the remaining categories might be
made a little easier. This would be so, I thought, even if— as in feet
turned out to be the case— I personally was able to do little more
than suggest a new conceptual framework within which research
into the operation o f the law o f value in different historical systems,
including monopoly capitalism, might profitably proceed.
The result o f this is that the book as it now stands is addressed not
only to my non-Marxian colleagues but also to those Marxists who
are interested in the development and reapplication o f the basic
Marxian economic categories. M y fear, o f course, is that in trying
to address two different audiences at once I shall succeed in appealing
to neither. M y hope, however, is that the book may play a small part
in helping to usher in a period o f coexistence between the two groups,
in which accusations o f dishonesty and academic incompetence will
be replaced by genuine attempts to understand and evaluate one
another’s point o f view, and in which Marxists and non-Marxists
will enter into peaceful competition with one another to see who can
provide the more accurate and useful analysis o f economic reality.
This book has been some time in the making, and the obligations
 PREFACE 9
I have incurred to those o f my friends and colleagues who have

in detail. I owe a special debt, however, to Professor A. L. Macfie,

whose conversations over the past eight years on certain aspects o f
the history o f economic thought have helped me to surmount many
obstacles; and also to Mr. Emile Bums, Mr. Maurice Comforth, Mr.
M. H. Dobb and Mr. John Eaton, who read the book in manuscript
and made valuable suggestions for its improvement. M y obligation
to Mr. Dobb extends far beyond this particular service: his constant
interest and encouragement, and the inspiration afforded by his own
work in this field, have more than anything else made the writing
o f this book possible. None o f these, o f course, must be held responsible
for the arguments put forward in this book, or for any errors and mis­
interpretations which remain.
,
I am obliged to the editors o f the Economic Journal Economica, the
Review of Economic Studies and the Scottish Journal of Political Economy
for permission to reproduce certain passages from articles which have
already appeared in these journals.
Finally, I should like to thank my students, both at Glasgow Uni­
versity and elsewhere. If to teach is to learn, to learn is also to teach.
R . L. M.
12th November, 1955
 C hapter O ne

VALUE THEORY BEFORE ADAM SMITH

ACCORDING to the Classical economists,1 the main task of
/-A value theory was to explain what determined that “power of
1 \ purchasing other goods” which the possession of a particular
commodity normally conveyed to its owner. “Normally” was defined
with reference to the prevalence of competition. Under competitive
conditions, it was said, and in the long period, commodities “normally”
tended to sell at prices roughly equal to their costs of production,
including profits at the customary rate, although temporary deviations
from this “normal” or “natural” price might be brought about by
fluctuations in supply and demand. This “normal” price, equal to
costs of production, was regarded as the monetary expression of the
value of a commodity.
The majority of Western economists today would probably not
be prepared to accept this definition of value; but to most of them,
particularly if they have been brought up in the Marshallian tradition,
it is at least not likely to appear inherently unreasonable. Indeed, so
reasonable does it still appear that one is apt to forget that each of the
several positions of which it is compounded had to be conquered by
the early Classical economists in the face of considerable opposition
and confusion. It is%the first of the purposes of the present chapter to
describe and account for the gradual evolution of this way of looking
at value, With particular reference to the century prior to the publica­
tion of Adam Smith’s Wealth of Nations.
What does appear unreasonable to many Western economists is
the considerable emphasis which Classical political economy placed
on the role of labour in the determination of v a lu e , and its stubborn
refusal to grant demand and utility the status of determinants. Yet
the labour theory of value was not an exotic growth: its development
went hand in hand with that of the concepts I have just been
1 T h e term. “ Classical economists*’ , w h ich seems to have been first em ployed b y M a rx ,
is w id e ly used b y present-day historians o f econom ic thought, but only rarely in M a rx ’s
original sense. In this b o o k it is em ployed, as it was b y M arx, to mean the school o f
political econom y dating fro m P etty to R icard o in Britain and from Boisguillebert to
Sism ondi in France w h ich “ investigated the real relations o f production in bourgeois
society” . See M a rx ’s Critique o f Political Economy (Kerr edn.), p. 56, and Capital, V oL I
(A llen & U n w in edn.), p. 53, footnote.
12 STUDIES IN THE LABOUR T H E O R Y OF VALUE
describing. It is the second o f the purposes o f this chapter to account

and to explain its historical connection with these concepts.

i. The Canonist Approach to the Value Problem

Although this chapter will be mainly concerned with value theory
in the seventeenth and eighteenth centuries, it is useful to start the story
with Aquinas. The particular approach to the problem o f value
which is revealed in most o f the early Canonist writings on die just
price has rather more in common with the Classical theory than has
the approach generally adopted by the Mercantilists. The reason
is, o f course, that the Canonists, like the Classical writers, generally
attacked the problem o f value from the point o f view o f man’s activity
as a producer o f commodities, whereas the Mercantilists usually
attacked it from the point o f view o f his activity as an exchanger o f
commodities.
The particular form o f production in which Aquinas was pre­
dominantly interested was that which was carried on by small
independent producers who sold their products on the market and
purchased commodities for their own use with the proceeds. The chief
problem which concerned the early Canonist writers was so to define
the “ value” o f commodities produced and exchanged in this fashion
that any divergence between this value and the actual price received
and paid could be clearly disclosed as ethically unjust either to the
seller or the buyer. Since the proceeds o f the sale o f a commodity
normally accrued in the first instance to its direct producer, the idea
that remuneration should be proportionate to outlay and effort in
production (provided that the remuneration was weighted according
to status, and provided also that the effort was properly directed)
afforded a natural basis for the definition o f the just price. The constitu­
ent elements o f the mediaeval just price were mainly items o f pro­
ducers’ cost— notably labour expended, but also risk undertaken,
money laid out in the purchase o f raw materials, costs of transport,
etc.— which required to be adequately compensated for if justice was
to be done. These elements in their totality made up the value or
real worth o f a commodity, which might differ from the subjective
estimates o f its worth made by either party to the exchange transaction.
Generally speaking, the judge o f the point o f equivalence between
cost and reward was conceived to be simply the common agreement
or estimation o f the community. This criterion, in Aquinas’s time,
 V A L U B T H E O R Y BEFORE SM ITH 13
was probably adequate to secure a rough measure o f distributive
justice, since in a small, static and relatively self-sufficient community
the efforts made and expenses incurred by different producers could
usually be directly compared.1
But another form o f exchange was already becoming important
in Aquinas’s time. In Aquinas’s famous discussions on “ Fraud Com­
mitted in Buying and Selling” , the first three o f the four sections seem
to deal mainly with the obligations o f sellers who are also independent
producers. But the fourth section deals with the case of those whose
activities are directed towards “ selling a thing for more than was paid
for it” , i.e., the traders and merchants.2 The motives o f the merchant
are different from those of the small independent producer: he is
the harbinger o f a new type o f economy, although he does not at
first regard himself as a revolutionary.3 It would hardly have been
possible for the Canonists to condemn this highly useful form o f
social activity outright. Aquinas introduces his discussion o f this
awkward problem by recalling Aristotle’s distinction between the
4‘natural” kind o f exchange by means o f which ‘ ‘one thing is exchanged
for another, or things for money to meet the needs o f life” , and that
other kind o f exchange by means o f which things are exchanged
for money “ not to meet the needs o f life, but to acquire gain” . The
second kind o f exchange, trading, is regarded as being in itself “ some­
what dishonourable” . But there are at least two ways in which a man
who sells a thing for more than he paid for it may escape moral
condemnation. First, he may direct his gain to some necessary or
honourable end— “ as when a man uses moderate gains acquired in
trade for the support o f his household, or even to help the needy.”
Second, he may lawfully sell a thing for more than he paid for it
if, after having originally bought it without any intention o f selling it,
he later wishes to sell it, provided that in the meantime “ he has im­
proved the thing in some way” , or i f “ the price has changed with a
change o f place or time” , or if risk has been involved in transporting

1 C f. W . C unningham . The Growth o f English Industry and Commerce (5th edn.), V o l. U,

p. 4 6 1; R . H . T a w n e y , Religion and the Rise o f Capitalism (Penguin edn.), p. 49; R u d o lf
Kaulla, Theory o f the Just Price, chapter 1 ; and H . R . Sew all, The Theory o f Value before
Adam Smith (Publications o f the A m erican Econom ic Assn., 3rd Series, V o l. Q, N o . 3),
passim. See also b elo w , pp. 295-6.
2 C f. H . R . Sew all, op. cit.t p. 18.
8 “ Into this w o rld there entered the m erchant w ith w h o m its revolution was to start.
B u t not as a conscious revolutionary; on the contrary, as flesh o f its flesh, bone o f its bone.
T h e m erchant o f the M iddle A ges was b y no means an individualist; he was essentially
a co-operator like all his contemporaries” (Engels on “ Capital” , pp. 106-7).
14 STUDIES IN THE L A B O U R T H E O R Y OP V A L U E

the thing from one place to another.1 In other words, the trader can

independent producer. Aquinas's discussion indicates that in his day

the trader’s activities were already being accepted— even i f only
reluctantly— as an inevitable feature o f economic life. But it also
suggests that the gains o f the trader had not yet come to be conceived
as a completely separate and distinctive category o f income, since
his receipts could apparently still be plausibly assimilated to those o f
the peasant and craftsman.
In the last analysis, it was the activities o f the trader, hesitantly
sanctioned in Aquinas’s system, which eventually destroyed that system.
The basic economic concepts o f the Summa Theologica could not
hope to survive the great development o f internal and external com­
merce in the later Middle Ages. The just price o f a commodity could
not be rationally assessed according to Aquinas’s principles if its seller
came from afar and the cost o f producing it was therefore unknown.*
The story o f the gradual decline o f the economic theory o f early
Scholasticism is too familiar to require repetition, and one point
alone seems to need emphasis here. The mediaeval concept o f the
just price gradually lost its power over men’s minds as the impersonal
and unconscious market took over the task o f regulating prices. But
the habit o f thinking o f “ value” in terms o f producers’ cost remained
firmly rooted in the consciousness o f the direct producers themselves,
and was later to prove itself one o f the most influential o f all the
economic legacies left by the Schoolmen.

2. The Mercantilist Theory o f Value

In the days o f the decline o f Scholasticism, those who were anxious
to develop the just price doctrines so as to take account o f the needs
o f expanding trade and commerce (and in particular the need for
the gains o f the merchants and traders to be recognised as just) found
it necessary to retreat from the producers’ cost approach to value
towards what may be called the “ conventional price” approach.
Cases in which it was impossible to reconcile the gains o f traders
with Aquinas’s original formulae must have become more and more
common, and under these circumstances it became advisable to
demonstrate that the price customarily paid and received— i.e., the
conventional price— was just. This could be done, without too much
1 Quotations from A . E. M onroe, Early Economic Thought, pp. 62-4.
* C £ H . R . Sew all, op. cit., p. 122.
 V A L U E T H E O R Y BEFORE SM ITH 15
damage to Aquinas’s basic premises, by arguing that the “ value” o f a

chaser. If the purchasers o f a particular commodity were willing

to buy it at a price higher than its producers’ cost, this price could then
be taken to represent the commodity’s worth or “ real value” to them.
£ certain amount o f attention therefore began to be paid to the
subjective valuations o f the individual consumer, and the concept
o f “ normal need” upon which the older theory had largely relied
began to go out o f fashion.1 Thus the transition to the value theory
characteristic o f the earlier years o f Mercantilism was relatively easy.
Hie later ecclesiastical writers themselves laid the foundations o f the
structure o f ideas which the secular publicists o f the Mercantilist era
were eventually to erect.
It is difficult, however, to make any useful generalisations about
the ideas on value which were compounded in the great crucible
o f the sixteenth and early seventeenth centuries, following on the
swift increase in the “ extent o f the market” after 1492. Any such
generalisations would have to be wide enough to cover not only a
great number o f writers (few o f whom were directly concerned to
elaborate a theory o f value), but also a number o f different countries
at varying stages o f social and economic development. It does seem
possible, however, to distinguish three important notions regarding
price and value which began to grow in popularity about this time.
In the first place, the “ value” (or, sometimes, “ natural value” ) o f a
commodity came to be widely identified with its actual market price.
Second, the level o f this “ value” was regarded as being determined
by the forces o f the market— i.e., by supply and demand. Third, the
concept o f “ intrinsic value” , or utility, as distinct from “ value” ,
or market price, began to emerge, and something like a causal con­
nection between the two was often postulated. Consider the following
sets o f quotations from Nicholas Barbon’s pamphlet, A Discourse
o f Trade:

1. “ The Price o f Wares is the present Value. . . . The Market

is the best Judge o f Value; for by the Concourse o f Buyers and
Sellers, the Quantity o f Wares, and the Occasion for them are Best
known: Things are just worth so much, as they can be sold for,
according to the Old Rule, Valet Quantum Vendi potest.”
2. “ The Price o f Wares is the present Value, And ariseth by
1 K aulla (op. cit., p. 64) remarks that “ the austere view s o f the Scholastics must have
caused them to regard leanings tow ards subjectivism as a sign o f decadence” .
 16 S T U D I E S I N T H E L A B O U R T H E O R Y OF V A L U E

Computing the occasions or use for them, with the Quantity to

has Bought his Goods, To know what he shall Sell them for:
The Value o f them, depends upon the Difference betwixt the
Occasion and the Quantity; tho* that be the Chiefest o f the Mer­
chants Care to observe, yet it Depends upon so many Circumstances,
that it’s impossible to know it. Therefore i f the plenty o f the Goods,
has brought down the Price; the Merchant layeth them up, till the
Quantity is consumed, and the Price riseth.”
3. “ The Value o f all Wares arise from their Use; Things o f no
Use, have no Value, as the English Phrase is, They are goodfor nothing.
The Use o f Things, are to supply the Wants and Necessities o f Man:
There are Two General Wants that Mankind is bom with; the Wants
o f the Body, and the Wants o f the Mind; To supply these two
Necessities, all things under the Sun become useful, and therefore
have a Value. . . . The Value o f all Wares, arriveth from their Use;
and the Dearness and Cheapness o f them, from their Plenty and
Scarcity.”
The three ideas which 1 have distinguished appear to be fairly clearly
implied in these three statements.1
Barbon’s Discourse was published in 1690, at a time when the
Mercantilist approach to value was already beginning to give way
to the Classical approach. The pamphlet is obviously transitional:
Barbon looks forward towards Adam Smith almost as often as he
looks backward towards the earlier Mercantilists. His comments
on value, however, which a number o f modem critics have praised
because o f their emphasis upon utility, must have appeared to many
contemporaries to be conservative rather than revolutionary, since
they are so obviously based on the traditional Mercantilist outlook.
“ The excellency o f a Merchant” , as Petty had put it, lay in “ the
judicious foresight and computation” o f market prices;2 and it was
only natural (particularly in the century o f the price revolution)
that the merchant should think o f the “ value” o f a commodity in
terms o f its market price rather than in terms o f its producers* cost.
It was natural, too, that emphasis should be laid on the influence o f
demand (and thus o f utility) upon the “ value” o f the commodity.

o f production and production costs, and accordingly tended to regard

the level o f his profits as being largely dependent upon the degree to
1 T he quotations from B arb o n in this section are taken from the reprint o f the Discourse
edited b y J. H . Hollander, pp. 13*16, 39 and 41.
2 Petty, Economic Writings (H u ll edn.), V o L I, p. 90.
 V A L U E T H E O R Y BEFORE SM ITH 17
which the commodities in which he dealt were suited to the require-
ments
It is important to note not only that the profits of the merchant
were customarily regarded as being paid by the consumer, but also
that in the earlier Mercantilist period they actually were so paid.
The crucial point here is that the means o f production, generally
speaking, were still in the hands o f the direct producers. Profit could
be secured by the “ exploitation” o f the consumer, but only rarely
as yet by the exploitation o f the direct producer. As Engels put it,
“ Production was still predominantly in the hands o f workers
owning their own means o f production, whose work therefore
yielded no surplus value to any capital. If they had to surrender
a part o f the product to third parties without compensation, it
was in the form o f tribute to feudal lords. Merchant capital, there­
fore, could only make its profit, at least at the beginning, out o f
the foreign buyers o f domestic products, or the domestic buyers
o f foreign products; only toward the end o f this period . . . were
foreign competition and the difficulty o f marketing able to compel
the handicraft producers o f export commodities to sell the com­
modity under its value to the exporting merchant.” 1
In other words, industrial capital (as distinct from merchant capital)
was not yet a really significant factor in economic life, and the only
form o f profit to attract any great degree o f attention was the “ profit
upon alienation” secured in commerce. The example o f Barbon
shows how difficult it must have been, even as late as 1690 and even
for those who interested themselves in the process o f production
as well as the process of exchange, to visualise “ profit on capital”
as an element in the income o f the “ artificers” . Barbon, significantly
enough, defined “ trade” as not only the selling but also the making
o f goods, and occasionally used the word “ profit” as a blanket term
to cover the net gains o f both artificer and merchant. But Barbon’s
artificers, as he himself makes quite clear, are assumed to “ cast up
Profit, and Loss” with reference solely to time. It is only the merchants
who “ cast up Profit, and Loss” with reference to interest.2 Industrial
capital, and the phenomenon o f a rate o f profit on industrial capital,
inconspicuous to be abstracted from. The
1 Engels on “ Capital” , pp. i i o - i i . C f. M . H . D ob b , Studies in the Development o f
Capitalism, pp. 199-200.
2 “ Interest is the R u le that the M erchant Trades b y ; A n d T im e, the Artificer, B y w hich
they cast up Profit, and L oss; for i f the Price o f their W ares, so alter either b y Plenty,
o r b y C hange o f the U se, that they do not pay the M erchant Interest, nor the A rtificer
for his T im e, they both reckon th ey lose b y their Trade.”
l8 STUDIES IN THE L A B O U R T H E O R Y OF V A L U E

impending growth o f industrial capital (the rudiments o f which, as

Engels went on to remark, had been formed as early as the Middle
Ages) was destined to bring about a tremendous transformation not
only in economic reality but also in the theoretical reflection o f that
reality in the minds o f economists. Much o f the remainder o f the pres­
ent chapter is in effect an attempt to describe the influence o f this
development on the form and content o f political economy, and in
particular on the shape o f the theory o f value.

3. The Transition to Classical Value Theory

In the late seventeenth century, particularly in Britain, the old
producers’ cost approach to value begins to show distinct signs o f
revival. More and more emphasis gradually comes to be laid on pro­
duction costs, particularly in manufacture. Sometimes, as occasionally
with Cary (and, much later, with Steuart), we even find an inclination
to reserve the word “ value” (used in conjunction with adjectives like
“ true” or “ real”) to describe these costs. The “ true” or “ real” value o f
a commodity, according to this conception, is less than the price
yielded upon its sale by an amount equal to profit. “ Artificers” ,
wrote Cary, “ by Tools and Laves fitted for different Uses, make
such things, as would puzzle a stander by to set a Price on, according
to the worth o f Mens Labour.” Manufactured goods, he maintained,
“ yield a Price, not only according to the true Value o f the Materials
and Labour, but an Overplus according to the Necessity and Humour
o f the Buyers.” 1 The majority o f economic writers, however, still
continued to think o f “ value” in terms o f market price, but an in­
creasing number began to display an interest in the relation between
market price and production costs.
This revolution in economic thinking reflected a revolution in
economic practice. The writers o f the time, broadly speaking, were
the spokesmen o f the merchant-manufacturers and parvenu industrial
capitalists o f the towns, whose increasing concern with production
costs was indicative o f far-reaching changes which were taking place
in the organisation o f production. The existing mode o f production
was being transformed, both from within and from without. The
encroachment from without was carried out by certain sections o f
the merchant classes which began to exercise direct control over
production. The growth o f competition (in the sphere o f internal
1 John C ary , A n Essay towards Regulating the Trade and Employing the Poor in this
Kingdom (2nd ed n „ 1719), pp. 98-9 and 11-12 .
 V A L U E T H E O R Y BEFORE SM ITH 19
if not yet so much o f external trade) was making it more and more

method o f exploiting price differences. Some form o f control over

production itself was gradually found necessary. The forms adopted
varied from “ putting out” systems— which were usually accompanied
by a greater or lesser degree o f pressure upon the direct producers—
to more radical alterations in the organisation o f production designed
to increase productivity by taking advantage o f the economies made
possible through the division o f labour and (to a much lesser extent)
through new technical discoveries. The latter forms o f encroachment,
however, were more often carried out from within than from without
— by what Mr. Dobb has described as “ the rise from the ranks o f the
producers themselves o f a capitalist element, half-manufacturer, half­
merchant, which began to subordinate and to organise those very
ranks from which it had so recently risen” .1 These various measures
o f encroachment often involved a considerable advance towards the
establishment o f capitalist relations o f production2 as the norm in the
particular fields o f industry where they took place.
The most important precondition o f any such advance is, o f course,
the “ freeing” o f an abundant supply o f wage-labour. Large numbers
o f direct producers have to be dispossessed o f their means o f produc­
tion before their labour can be organised on a capitalist basis. It is
fairly clear from the content o f the economic literature o f the last
quarter o f the seventeenth century, if not that this process was already
appreciably under way, at least that its significance and necessity had
been widely appreciated. The literature abounds with suggestions
for attracting foreigners to the country by encouraging immigration
and permitting naturalisation, for “ setting the poor to work” , abolish­
ing the death penalty for all but the most serious offences, and so on.
“ Traffike” gradually ceases to appear in treatises as the most valuable
1 D o b b , op. cit., pp. 128-9, srnd chapter 4, passim.
2 T h e term “ relations o f production** is generally used in M arxist literature to refer
to those relations betw een m en and m en in production o f w h ich the property relations
specific to a particular epoch are the legal expression. It is in this sense that w e use the term
w hen w e are contrasting capitalist “ relations o f production**, say, w ith feudal “ relations
o f production** or socialist “ relations o f production’*. T h e term was also used b y M a rx
and Engels, h ow ever, to include (or to refer exclusively to) those broad relations betw een
m en as producers w h ich are characteristic o f all societies in w h ich different individuals
(or groups) are directly or indirectly assigned to different jobs. It is in this sense that w e
use the term w hen w e speak, say, o f the “ relations o f production’’ characteristic o f
societies based on the production o f com m odities. (For the M arxist definition o f a “ com ­
m odity” , see pp. 37-8 below .) T h e term is used in both senses in the present w o rk , but
the context should indicate in w hich sense it is being used in any particular place. T h e
matter is dealt w ith in greater detail on pp. 151-2 below .
 20 STUDIES IN THE L A B O U R T H E O R Y OF V A L U E

form o f economic activity. “ People are . . . in truth the dbiefest, most

fundamental, and pretious commodity” , wrote the author o f Britannia
Languetts, “ out o f which may be derived all sorts o f Manufactures,
Navigation, Riches, Conquests, and solid Dominion.” 1
It is from this epoch-making discovery o f the great productive
potentialities o f “ free” wage-labour organised on a capitalist basis
that Classical political economy, and with it the Classical theory o f
value, really date. Classical political economy takes as its point o f
departure the idea which Adam Smith stated in the very first sentence
o f the Wealth o f Nations— the idea that “ the annual labour o f every
nation is the fund which originally supplies it with all the necessaries
and conveniences o f life which it annually consumes” . Note that Smith
speaks, not o f the labour o f the merchant, or the agriculturist, or the
artificer, but o f labour in general. The attitude underlying this new
concept began to be moulded in the period we are now considering.
A precious new commodity, labour power, is thrown upon the market
— a commodity which when properly organised, particularly in
manufacture, is capable o f yielding not only an abundance o f material
goods to the nation, but also handsome profits to its purchaser. Those
who are interested in tapping this new source o f riches begin to think
o f “ labour” as a relatively homogeneous, undifferentiated commodity.
“ The labours o f the people bestowed in this way” (upon manu­
factures), wrote the author o f Britannia Languens, “ must necessarily
glomerate the riches o f the world and make any nation a prodigy
o f wealth.” “ Our moveable riches” , said Pollexfen in 1700, “ had
their original and must have their increase from the labour and in­
dustry o f our people.” 2 General, abstract, human labour slowly begins
to be recognised as the primary and universal cost-element in pro­
duction, the basic cause o f that value-difference between output and
input upon which national prosperity (and individual profits) ulti­
mately depend. Economists begin to visualise the productive activity
o f the nation as a whole in terms o f the disposition o f its labour force.
And the foundations are laid for a fundamental distinction which will
later play a central part in economic thinking— the distinction between
productive and unproductive labour.
To say that the
this unique place, however, is not to say that they yet adhered to a
“ labour theory o f value” . The Classical labour theory, as we shall see,
1 Britannia Languens (1680), p. 238.
2 Cited, together w ith a num ber o f other exam ples, b y E. S. Fumiss, The Position o f the
Labourer in a System o f Nationalism, chapter 2, pp. 17-19, and passim.
 V A L U E T H E O R Y BEFORE SM ITH 21
was something much more profound and far-reaching than the rather
vague formulations o f even the most acute o f the seventeenth-century
writers— few o f whom, after all, were directly concerned to formulate
a theory o f economic activity. There were, it is true, plenty o f state­
ments made at about this time to the effect that labour “ makes the far
greatest part o f the value o f things we enjoy in this world” ,1 that
labour is “ the cause o f wealth” , “ the source o f value” , and so on.
But with one or two prominent exceptions which will be considered
later in this chapter, the authors o f such statements as these did not
intend to put forward a theory o f the determination o f the value o f
commodities by labour time. Sometimes they meant simply that
“ free” labour organised on a capitalist basis, particularly in manu­
facture, could “ glomerate the riches o f the world” . When their
statements implied something deeper than this, they generally meant
either one or both o f two quite different things, between which it
is important to distinguish.
They sometimes meant, in the first place, that the use value or
utility o f commodities was largely the creation o f labour. Locke*s
famous discussion o f the manner in which labour “ puts the difference
o f value on everything” probably comes into this category. “ I think” ,
he said, “ it will be but a very modest computation to say, that o f
the products o f the earth useful to the life o f man, nine-tenths are
the effects o f labour. Nay, if we will rightly estimate things as they
come to our use, and cast up the several expenses about them— what
in them is purely owing to Nature and what to labour— we shall
find that in most o f them ninety-nine hundredths are wholly to be put
to the account o f labour.” Locke is probably thinking here, not o f the
capacity o f labour in general to confer upon a commodity the power
o f commanding other commodities in exchange, but rather o f the
power o f specific types o f labour (what Marx was later to call concrete
as distinct from abstract or undifferentiated labour) to create use
values o f various kinds. If you examine any common commodity,
Locke is telling us, and take away the effects o f the labour that has been
bestowed upon it, the residuum consists only o f raw materials which
are almost useless in themselves. “ For whatever bread is more worth

moss, that is wholly owing to labour and industry.” 2 It is not easy, o f

1 L ocke, O f C ivil Government (Everym an edn.), p. 137.
2 L ocke, op. cit., pp. 136-7. Locke’s influence upon the early Classical economists w as
probably m ore political than econom ic. T h e Treatises reflect the essential basis o f the
Restoration settlement— the unexpressed agreem ent that the revival o f the m onarchy
22 S T U D I E S I N T H E L A B O U R T H E O R Y OF V A L U E

course, to draw a clear dividing line between statements ascribing

frn labnnr the creation o f use valu e and those ascribing to it th e
creation o f exchange value, since the expenditure o f labour in the
production o f a commodity normally creates both. But in statements
o f the type I am now considering, the creation o f exchange value,
when it is impliedly referred to, is really almost invariably being
ascribed, not to the capacity o f abstract labour to create exchange
value directly, but rather to the capacity o f concrete labour to increase
the use value o f commodities and thereby indirectly to increase their
exchange value.1 It is worth noting that when Locke came to write
his Some Considerations o f the Consequences o f the Lowering o f Interest,
very shortly after the publication o f the Treatises, he gave an account
o f the determination of price which differed little from contemporary
Mercantilist accounts. “ The price o f any Commodity” , he wrote,
“ rises or falls, by the proportion o f the number o f Buyers and Sellers . . . .
The Vent o f any thing depends upon its Necessity or Usefulness, as
Convenience, or Opinion guided by Phancy or Fashion shall de­
termine.” 2
In the second place, those who then described labour as the source
o f value and wealth were often meaning to say only that wage-costs
were usually the most important element in the cost o f production
o f manufactured commodities. The labourers added an amount
o f value equal at least to the “ value o f their labour” — i.e., their wages—
to the raw materials which they worked up, and this added value was
usually very large relative to that of the raw materials themselves.
“ Most materials o f Manufacture are o f small value whilst raw and
unwrought” , wrote the author o f Britannia Languens, “ at least in Com­
parison o f the Manufacture, since by Manufacture they may be made
o f five, ten or twenty times their first value, according to the Work­
manship” * So important was labour's contribution assumed to be that
there was often a tendency to conceive o f the “ value” of the finished
commodity as consisting almost entirely o f the “ value of the labour”
should not entail the revival o f feudal restrictions. T he chapter on Property, fr o m w h ich
the quotations in the text are taken, w as intended to supply a set o f m oral title-deeds
to the property o f the farmers, master-craftsmen and merchant-manufacturers w h o then
form ed the nucleus o f the British bourgeoisie. These classes, Locke was im p licitly asserting,
had a right to the undisturbed enjoym ent o f the fruits o f their “ labour**— a rig h t w h ich
was just as w e ll i f not better founded than that o f those classes whose p ro p erty had
form erly been protected b y feudal regulations.
1 For the M arxian distinction betw een “ abstract” and “ concrete” labour, see b elo w ,
pp. 165-7.
2 Locke, Considerations (1691), in Works (1714 edn.), VoL II, p. 16.
3 Britannia Languens, pp. 23-4.
 V A L U E T H E O R Y BEFORE SM ITH 23
used to produce it. It is not quite correct, however, to describe this
le primary
concern o f most contemporary writers was not to formulate a theory
o f value, but to emphasise the importance o f securing an abundant
supply o f cheap labour. Their efforts were largely directed towards
the reduction o f wage-costs. The advocates o f an increased population,
o f poverty as a spur to industry, and o f increased disciplinary measures
against the labourers, obviously had this consideration at the back
o f their minds, and were often honest enough to admit it. But the
contemporary tendency to regard the value o f a finished commodity
as being virtually dependent upon its wages-cost does require some
explanation. It is difficult to understand at first sight how such a view
could ever have appeared plausible. To the modem economist it
seems axiomatic that the commodity would have to sell at a price
sufficient to include profits as well as wages if its production were to be
continued. But to tie seventeenth-century merchant who “ put out”
raw materials to be worked up by more or less independent direct
producers, the cost price o f the commodity at least would appear
to consist almost entirely o f wages. And the actual price at which
the commodity was finally sold, whether at hbme or abroad, although
it obviously could not have been equal to the wages-cost, must often
have bome a fairly regular proportion to it, the more nearly so as
profits on mercantile capital were reduced to a common level by
competition. To the master-craftsman who had risen from the ranks
and taken to trade, again, the selling price o f the commodity probably
appeared to be resolvable almost entirely into wages-cost, since he
would very likely regard his “ profit” merely as a sort o f superior wage
for his own labour. And in any case, it is obvious that in a society
where the major economies were still being secured by the extension
o f the division o f labour rather than by the increased introduction o f
machinery, the level o f the wages-bill would have a decisive effect on
the selling price.
To sum up, then, the great economic changes which took place
in the period we are considering began to divert the attention o f
economists from the sphere o f exchange to that o f production, and
encouraged the growth o f the idea that labour was in some way the
“ source” or “ cause” o f wealth and value. But there were as yet
only a few traces o f a “ labour theory o f value” in the true Classical
sense. When economists spoke o f labour as the “ source” or “ cause”
1 Furniss, op. cit., p. 159,
24 S T U D I E S IN TH E L A B O U R THEORY OF V A L U E

o f value, they usually meant no more than that exchange value was
)on wages-cost (including the “ wages” o f the
master-craftsman), or that labour created exchange value by reason
o f its effect in increasing the use value o f commodities. Neither o f
these ideas really constitutes a “ labour theory of value” . Their emer­
gence indicates merely that economists are beginning to look in the
direction o f a labour theory o f value.

4. The Classical Concept of “Natural Price "

The main key to the development o f the Classical theory o f value in
the eighteenth century is to be found in the gradual emergence and
recognition o f profit on capital as a general category o f class income
which accrued to all who used “ stock” in the employment o f “ pro­
ductive” wage-labour, and which was qualitatively distinct from
the interest on money, the rent o f land and the wages o f labour.
It had long been recognised, o f course, that those w ho employed
“ stock” in mercantile pursuits generally received a net reward which
was proportioned not to the effort, if any, which they expended, but
rather to the value o f the “ stock” employed. During the eighteenth
century, as capitalism developed and extended its field o f influence,
it gradually came to be recognised diat net gains similar in this respect
to mercantile profit were now also earned on capital employed in
other economic pursuits, such as agriculture and manufacture. These
net gains, it was seen, bore a more or less regular proportion to the
amount o f capital, in whatever sphere it happened to be employed.
And, even more important, it also came to be recognised that the origin
o f these net gains was now very different from what it had formerly
been. In earlier centuries, generally speaking, profit had appeared as
“ profit upon alienation” — i.e., as the gain from buying things cheap
and selling them dear. In the eighteenth century, on the other hand,
profit eventually began to appear as an income uniquely associated
with the use o f capital in the employment o f wage-labour.
The emergence o f profit on capital in the Classical sense as a new
category o f class income was not merely a conceptual but also a
historical phenomenon. As Engels once remarked in a similar connec-
tion, “ we are dealing here not only with a purely logical process, but
with a historical process and its explanatory reflection in thought,
the logical pursuance o f its inner connections”.1 Profit on capital,
and tire social classes which came to receive incomes o f diis type, were
1 Engels on “ Capital” , p. 100.
 V A L U E T H E O R Y BEFORE SM ITH 25
o f course the ultimate products o f several centuries o f economic
>arently not until the latter half o f the
eighteenth century that profit on capital, as a new generic type o f
class income, became so clearly differentiated from other types o f
income that economists were able to grasp its full significance and
delineate its basic characteristics. There were a number o f obstacles
which had to be overcome before this could be done.
In the first place, there were certain difficulties connected with the
differentiation o f profit from interest on money and rent o f land.
Profit formally resembled these other types o f income in so far as they
all appeared to stand in a more or less regular proportion to a capital
sum— rent to a sum of money invested in the purchase of land, interest
to a sum o f money lent out to a borrower, and profit to a sum of money
used directly in the employment o f wage-labour. During the century
prior to the appearance of the Wealth of Nations, the vital distinction
between money (i.e., money as a hoard) and capital (i.e., money utilised
in order to secure a revenue) began to be recognised by a number o f
economists. “ No Man is richer for having his Estate all in Money,
Plate, &c. lying by him” , wrote North in 1691, “ but on the contrary,
he is for that reason the poorer. That man is richest, whose Estate
is in a growing condition, either in Land at Farm, Money at Interest,
or Goods in Trade.” 1 And at about the same time a further important
distinction came to be made between capital which was more or less
passively utilised (as in the case of “ Land at Farm” or “ Money at
Interest” ) and capital which was actively utilised (as in the case o f
“ Goods in Trade” ). It had become evident that whereas those who
utilised capital passively would normally receive as revenue only the
ordinary rate o f interest or its equivalent, those who utilised it actively
in “ trade” would normally make a net gain, or “ profit” , over and
above die ordinary rate o f interest. The way was then laid open for
the development o f the Classical concept o f interest as a derivative
form o f income which was paid out o f gross profit and ultimately
regulated by it. Smith, like Locke and Cantillon and Hume before him,
emphasised the fact “ that wherever a great deal can be made by the
use o f money, a great deal will commonly be given for the use o f it;
and that wherever little can be made by it, less will commonly be
given for it” .2 And just as the differentiation o f profit from interest
in the sphere o f “ trade” was possible only with the emergence o f a
1 Discourses upon Trade, etc., p. n . C f. M arx, Theories o f Surplus Value (English edn.),
p. 32.
2 Wealth o f Nations (Carman edn.), V o l. I, p. 90.
26 S T U D I E S IN T H E L A B O U R T H E O R Y O P V A L U E

separate class o f *'‘traders**, so the clear differentiation o f profit from

o f a separate class of agricultural capitalists. An adequate distinction

between rent-earning capital invested in the purchase o f land and
profit-earning capital invested in the actual farming of the land
could not be made (unless by w ay o f analogy with other spheres of
production) prior to the fairly wide-spread development o f capitalist
methods o f organisation in agriculture.
In the second place, there were certain difficulties connected with
the differentiation of profit from wages. As capitalism developed
in industry and agriculture, the objective conditions were gradually
established for the recognition o f the fact that the essential common
feature o f all active uses o f capital was the employment o f wage-
labour, and thus for the postulation of profit as a new type of class
income bom of the capital-labour relationship. But it very often hap­
pened at this time that the employers o f labour had risen from the
ranks o f the direct producers and still participated more or less actively
in the actual process of production. Therefore they naturally persisted
in regarding the difference between their paid-out costs and the price
they received for their commodities as a sort o f superior “ wage”
for their own personal efforts rather than as a “ profit” on the capital,
often very meagre, which they had supplied. Even when such employ­
ers came to confine themselves to merely supervisory functions,
it might still seem plausible to speak o f their net reward, as so many
economists at this time actually did speak of it, as the “ wages of
superintendence” . How difficult it was, even as late as the 1770 s, to
appreciate die nature of the difference between wages and profits is
shown clearly enough by the emphasis which Smith himself evidendy
felt obliged to place upon the point. Obviously aware that he was to
some extent breaking new ground, Smith went out o f his way to
insist that the profits of stock are not in fact “ the wages of a particular
sort o f labour, the labour o f inspection and direction” , but are “alto­
gether different” , being “ regulated by quite different principles” .
The owner o f capital, said Smith, even though he is “ discharged
o f almost all labour” , still expects that “ his profits should bear
a regular proportion to his capital” .1
Finally, there were certain obstacles standing in the way of the intro­
duction o f the concept o f an average rate o f profit. Before the profits
o f stock could come to be regarded as bearing a regular proportion
x Wealth o f Nations, V o l. I, pp. 50-1.
 V A L U E T H E O R Y BEFORE SM ITH 27
to the amount o f capital, in whatever sphere it happened to be
employed, it w as clearly necessary that the field covered by capitalist
methods o f organisation should be considerably enlarged, that competi­
tion in both internal and external trade should be reasonably free,
and that capital should be relatively mobile between different places
and occupations. Only then was it possible to say, as Smith did, that a
commodity whose price exceeds paid-out costs by an amount equal
to profit at the normal rate—
“ is then sold precisely for what it is worth, or for what it really
costs the person who brings it to market; for though in common
language what is called the prime cost o f any commodity does not
comprehend the profit o f the person who is to sell it again, yet i f
he sells it at a price which does not allow him the ordinary rate
o f profit in his neighbourhood, he is evidently a loser by the trade;
since by employing his stock in some other way he might have
made that profit.” 1
It was the emergence o f profit on capital as a new category o f
class income, then, sharply differentiated from other types o f income,
which cleared the way for the full development o f Classical political
economy. As the conditions I have described were gradually fulfilled
in the real world, the older accounts o f “ profit” necessarily began
to seem more and more inadequate. “ Profit” could no longer be
treated under the heading o f rent, where Petty had implicitly placed it.
It could no longer be identified with wages, as with Candllon and
Hutcheson. And it could no longer be regarded simply as a “ profit
upon alienation” originating in exchange whose level fluctuated
“ according to circumstances” , which was essentially Steuart’s view.
It became more and more clear that under competitive conditions
profit at a reasonably regular rate would be earned on capital in
whatever sphere it happened to be employed, and that this profit
must be regarded as originating in production rather than in exchange.
The first major theoretical product o f these new conditions o f which
I wish to speak was the Classical concept o f a “ natural price” . It
gradually came to be recognised that under competitive conditions
commodities tended in the long run to sell at “ natural” prices which

o f this fact came very slowly. Indeed, Adam Smith was probably the
first, if not to discern it, at least to appreciate and emphasise its signi­
ficance. O f the contributions o f his predecessors, only three seem to be
1 Wealth o f Nations, V o L I, p. 57.
28 S T U D I E S IN T H E L A B O U R T H E O R Y O P V A L U E

worth describing in this connection— those o f Richard Cantillon,

Petty, with his distinction between the “ natural” and the “ political”
price, had to some extent prepared the way for the Classical concept;
but Cantillon, writing about 1730, approached somewhat closer
to it than Petty had been able to do. Cantillon distinguishes between
the market price of a commodity and what he calls its “ intrinsic
value” . The latter, he says, is “ the measure o f the quantity o f Land
and of Labour entering into its production, having regard to the
fertility or produce of the Land and to the quality o f the Labour” .
The constituents of the “ intrinsic value” o f commodities, according
to Cantillon, are the “ value o f the land” and the “value o f the labour”
used to make them. But “ it often happens that many things which
have actually this intrinsic value are not sold in the Market according
to that value: that will depend on the Humours and Fancies o f men
and on their consumption” . For example, “ if a gentleman cuts Canals
and erects Terraces in his Garden, their intrinsic value w ill be propor­
tionable to the Land and Labour; but the Price in reality will not always
follow this proportion” . The market price may be much greater or
much less than “the value o f the Land and the expense he has incurred” .
“ Too great an abundance” o f a commodity may cause its market
price to fall below its “ intrinsic value” , and in a period o f scarcity
the reverse may happen. But “ in well organised Societies” , Cantillon
maintains, “ the Market Prices o f articles whose consumption is
tolerably constant and uniform do not vary much from the intrinsic
value.” 1
In these passages, of course, Cantillon is saying little more than that
market prices often tend to equal costs. He says nothing at this stage
about the mechanism by which the market price is made equal to the
“ intrinsic value” ; and profit on capital is not specifically included
as a separate constituent o f the “ intrinsic value” . In other places,
however, Cantillon comes rather closer to the Classical idea o f a
“ natural” equilibrium price w hich includes profit at the normal rate
as a constituent— as for example in the following passage where he
speaks o f the manner in which entrepreneurs “proportion themselves

“ If there are too many Hatters in a City or in a street for the

number of people who buy hats there, some who are least patron­
ised must become bankrupt: i f they be too few it will be a profitable
1 Essai sur la Nature du Commerce en G e n ita l (R o y a l Econom ic S ociety edn.), pp. 29-31.
 V A L U E T H E O R Y BEFORE SM ITH 29
Undertaking which will encourage new Hatters to open shops there
and it is that thp. I Tnderta
risks in a State.” 1
Cantillon’s “ intrinsic value” , as we have seen, does not expressly
include profit on capital as a constituent element, but he may have
envisaged “ profit” — or what he elsewhere calls the “ value o f the
Labour or Superintendence” o f the entrepreneurs— as being included
under the heading “ value o f the labour” . “ All the Undertakers” ,
he says, “ are as it were on unfixed wages.” 2 But the idea o f profit
on capital as a distinct category o f income, bearing a regular proportion
to the value o f the capital employed and representing a clear surplus
accruing to the entrepreneur after loan interest and “ wages o f manage­
ment” have been paid, is as yet only very hazily expressed, if at all.
The capitalist, it appears, is not yet clearly distinguishable from the
independent labourer, and for that reason the rewards accruing to
each o f these two classes still tend to be regarded as being qualitatively
similar. “ Undertakers” , according to Cantillon’s use o f the term,
include not only those who “ set up with a capital to conduct their
enterprise” but also those who are “ Undertakers o f their own labour
without capital.” 3
Harris, probably basing himself on Cantillon, argued that:

“ Things in general are valued, not according to their real uses

in supplying the necessities o f men; but rather in proportion to the
land, labour and skill that are requisite to produce them: It is accord­
ing to this proportion nearly, that things or commodities are ex­
changed one for another; and it is by the said scale, that the intrinsic
values o f most things are chiefly estimated. . . . Men’s various
necessities and appetites, oblige them to part with their own com­
modities, at a rate proportionable to the labour and skill that had
been bestowed upon those things, which they want in exchange:
If they will not comply with the market, their goods will remain
on their hands; and if at first, one trade be more profitable than
another, skill as well as labour and risques o f all sorts, being taken
into the account; more men will enter into that business,and in
their outvying will undersell one another, till at lengththegreat
profit o f it is brought down to a par with the rest.” 4__________

1 Essai sur la Nature du Commerce en Gćnćral, p. 53. C f. pp. 117-2 1.

2 Ibid., p. 55. 3 Ibid.
* A n Essay upon Money and Coins (1757), pp. 5 and 9. C f. p. 8: “ O n e great m ystery o f
trade, is to keep o ff new adventurers, b y concealing its profits; and w hilst that m ay be
done, the gains w ill be large.”
30 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

Harris’s account certainly represents a closer approximation to the

properly subject to the same basic criticism. But Harris’s treatment

o f die effects o f demand shows that some distance had yet to be
travelled. “ A quicker or slower demand for a particular commodity” ,
he wrote, “ will frequently raise or lower its price, though no alter­
ation hath happened in its intrinsic value or prime cost; men being
always ready to take the advantage o f one another’s fancies, whims
or necessities; and the proportion o f buyers to sellers, or the demand
for any particular commodity in respect to its quantity, will always
have an influence on the market.” 1 This influence will necessarily
be stronger in the case of “ natural” products than in that o f “ artificial”
products, so that the former will be “ subject to a greater variation
in their value” than the latter.2 Although Harris obviously had the
idea o f a “ natural” equilibrium price at the back o f his mind, he does
not seem to have clearly visualised this “ natural price” as the central
point around which the market price fluctuated and towards which
it constandy gravitated. Rather, “ prime cost” and “ the proportion
o f buyers to sellers” are given almost equal status as determinants,
standing side by side with one another. It was not until capitalist
competition had developed further, and the proportion o f commodities
which were freely reproducible had increased, that the Classical
theory o f value could be properly emancipated from this dualism.
In William Temple’s pamphlet A Vindication o f Commerce and the
Arts, which was published in 1758, there is another interesting anticipa­
tion o f the Classical concept. “ I can most clearly perceive” , Temple
writes, “ that the value o f all commodities or the price, is a compound
o f the value o f the land necessary to raise them, the value o f the labour
exerted in producing and manufacturing them, and o f the value o f the
brokerage which provides and circulates them.” 3 By “ brokerage,”
as the ensuing passage shows, Temple clearly meant something very
like “ profit” in Smidi’s sense o f the word. “ If the broker’s gains
do not please him” , Temple proceeded, “ he will withhold his sales.
The farmer will not sow, the manufacturers will leave off their trades,
if their employments and occupations produce a loss instead o f a
profit.” And in an appendix to the pamphlet, “ brokerage” appears
as an important item in a calculation o f the national income o f Britain
1 A n Essay upon Money and Coins, pp. 5-6. 2 Ibid., p. 7.
3 A Select Collection o f Scarce and Valuable Tracts on Commerce (1859), p. 522. T h e appendix
referred to b elo w is not included in this reprint. I o w e m y reference to this pam phlet
to Patten, The Development o f English Thought, pp. 237-8.
 V A L U B T H E O R Y BEFORE SM ITH 31
in 1600 and 1757. B y assuming that the “ gains o f trade” stand in a

deduce the “ value o f the brokerage” in “ foreign trade” and “ home

consumption” from estimates o f the annual turnover in each o f these
fields.2
The main significance o f the inclusion o f profit at the normal
rate in the constituents o f the long-run competitive price lay in the
fact that it enabled the Classical economists to demonstrate that the
level of this price was not dependent upon “ arbitrary” factors but
was rather “ subject to law” . So long as there was no very marked
tendency for the amount o f profit earned to bear a reasonably regular
relationship to the amount o f capital employed, it was difficult to make
any general statement about the level o f the market price o f a commo­
dity other than that it would usually exceed what Smith called “ prime
cost” by an increment (“ profit” or “ gain” ) which varied in each
individual case according to the state o f supply and demand. Clearly
such a statement was o f very limited use: it was scarcely capable o f
serving as the basis for forecasts o f any great degree o f generality.
Once the phenomenon o f a normal or “ natural” rate o f profit had
begun to manifest itself on a sufficiently wide scale, however, it became
possible to make a much more useful general statement concerning
the level o f commodity prices. Commodities, it could now be said,
tended under competitive conditions to sell at prices equal to “ prime
cost” plus profit at the “ natural” rate. A situation in which the
“ natural” rate o f profit was being earned, so that there was no tendency
for firms to enter or leave the industry, could be defined as a situation
o f equilibrium, in which supply “ balanced” or “ equalled” demand,
and the price at which commodities sold in this situation could be
conceived as their “ natural” price. The actual market price, although
it might differ at any given time from this “ natural” price (either
because o f the existence o f monopoly or because o f a temporary
discrepancy between supply and demand), could then be regarded
as “ continually gravitating” or “ constantly tending” towards it.3
This advance was sufficiently substantial to make it appear that the
1 C f. Sm ith. Wealth o f Nations. V o l. I. p. 00: “ D ou b le interest is in Great Britain reck-
oned, w hat the merchants call, a g ood , moderate, reasonable p rofit; terms w h ich I
apprehend mean no m ore than a com m on and usual profit.”
2 T em p le’s pamphlet was kn o w n , i f not to Sm ith, at least to certain members o f Sm ith's
circle. It was dedicated to Charles T ow nshend’s father; and it was brought to the notice
o f L ord Karnes b y jo s ia h T u cker (see L ord W oodhouselee’s Memoirs o f the Hon. H . Home
o f Karnes, p. 6 o f appendix, V o L II).
3 Wealth o f Nations, V o l. I, p. 60.
32 S T U D I E S IN TH E L A B O U R T H E O R Y OF V A L U E

earlier ‘‘supply and demand” principle had left the determination o f

prices to arbitrary factors whereas the new “ cost o f production”
principle made prices subject to law.

5. The Classical Concept of Labour Cost

Why, it may be asked, did the Classical economists not rest content
with a “ cost o f production” theory o f value? Having shown that the
long-run competitive price was equal to the cost o f production,
including profit at the normal rate, why did they then go on to seek
for a determinant of the cost o f production itself?
The answer, I think, lies fundamentally in the fact that a cost o f
production theory must necessarily assume that the constituents o f the
“ natural price” — in particular the level of wages and the rate of profit—
are given, independent factors. And when one is dealing with economic
problems o f the broad, global type, such as those with which the
Classical economists increasingly concerned themselves, this assump­
tion is clearly illegitimate. Whether or not one can treat any particular
factor as an independent variable naturally depends upon the nature
o f the problem which one is trying to solve.1 To the merchant o f the
sixteenth and seventeenth centuries, interested mainly in the day-to-
day prices o f a very limited range o f goods, a simple “ supply and
demand” theory o f value would suffice, since supply-and demand
could reasonably be regarded, in the context o f this particular problem,
as independent factors. To the economist o f the early eighteenth
century, interested mainly in the average prices of the relatively
small group o f goods produced on a capitalist basis and sold under
competitive conditions, a cost o f production theory o f value might
suffice, since the constituents o f the “ natural price” could plausibly be
conceived as independent factors. But as the sphere o f operation
o f capitalist commodity production extends, and the prices o f more
and more goods are revealed as being “ subject to law” , die constituents
o f the “ natural price” can no longer legitimately be treated as indepen­
dent determinants o f the values o f such goods, since they will them­
selves evidently be partly dependent upon these values. Economists
who are interested in dealing with broad fundamental problems
such as that o f “ the nature and causes o f the wealth o f nations” must
then begin to seek for a new value-principle which will be capable
o f determining not only the values of commodities but also the
1 See the suggestive treatment o f this point b y M . H . D o b b , Political Economy and
Capitalism, pp. 8-10.
 V A L U E T H E O R Y BEFORE SM ITH 33
values o f the productive agents whose rewards make up the “ natural
price” o f these commodities. The Classical economists gradually came
to believe— or at least to recognise instinctively— that a value-principle
of this type was required before political economy could be trans­
formed into a real science. And, o f course, they were perfectly correct
in thinking so.
There was another reason, of a rather more special character, why
the Classical economists became unwilling to treat the constituents
o f the “ natural price” as independent factors. One o f the most
important o f these constituents, capitalist profit, as we have already
seen, had begun to appear, not as a wage which rewarded productive
effort, but rather as a surplus related to the size o f the capital which
happened to be employed. And it had also begun to appear, not as an
increment which was somehow “ added” to costs in the process o f
exchange, but rather as something which actually originated in the
process o f production and was merely realised in exchange. Profit,
then, was a surplus over cost which originated in the course o f pro­
duction. Generally speaking, at least in its “ pure” or “ net” form, it
was not a compensation for anything which had been physically
used up or sacrificed in order to produce the commodity. After all
such sacrifices had been compensated for out o f the “ natural price” ,
profit remained as a clear surplus, which could safely be disposed o f
in whatever way its recipient pleased without prejudice to the main­
tenance o f the nation’s productive activity at its existing level. The
Classical economists were particularly interested in this characteristic
of profit, because they regarded profit as an extremely important
source o f capital, and the accumulation of capital as the key to the
growth o f wealth and abundance. The theory o f value, therefore,
had to be capable o f explaining how the level o f profit was determined.
The level o f profit could not itself be regarded as one o f the determin­
ants o f value: rather, a new value-principle had to be evolved which
would be capable o f explaining the origin and persistence o f that
quantitative value-difference between output and input in production
which manifested itself as profit. To the modern economist this pro­
blem is likely to appear a little unreal, since the present-day fashion

“ factors o f production” , whose rewards under competitive conditions

are all imputed in precisely the same way from the value o f the finished
product, has tended to wipe the question o f surplus (at least in the
Classical sense o f the word) off the agenda o f economic discussion.
34 STU D IE S IN THE L A B O U R THEORY O F V A L U E

To the Classical economists, however, the problem was a very real

one.
It would not have been possible for Adam Smith to proceed as
far as he did towards the solution o f these new problems if he had
inherited only those rudimentary pieces o f theoretical apparatus
bequeathed by the economists o f the seventeenth century. As we have
seen, this century had evolved the general idea that labour was in
some significant sense the “ source” or “cause” o f wealth and value.
But in most contexts statements o f this type were intended only to
express approval o f the capitalist form of productive organisation
and its attendant economies; and even those economists who had
meant something more had done little to clarify the concepts involved.
There had been no serious attempts to distinguish “ wealth” from
“ value” , and no one had been able to explain very clearly just how
labour created or contributed value to commodities. Some economists
had tried to explain the role o f labour by arguing that value was
largely dependent upon wages-cost. This explanation would no longer
do, partly because it necessarily became circular as more and more
labour was transformed into wage-labour, and pardy because the
equilibrium prices o f commodities, the level o f which the theory
o f value was required to explain, now included as a constituent
element an important item— profit— which could not properly be
reduced to wages. Then again, other economists had suggested that
labour contributed exchange value to commodities by adding to the
use value o f the raw materials, thereby increasing the quantity o f other
commodities which purchasers were willing to give in exchange for
them. But an explanation o f exchange value in terms of use value,
it seemed, would not do either. It had gradually become apparent that
although commodities could not be sold unless they possessed utility,
the “ natural prices” at which they tended to sell bore little relationship
to their utility. “ Prices or values in commerce” , wrote Hutcheson,
“ do not at all follow the real use or importance o f goods for the
support, or natural pleasure o f life.” 1 The concept o f utility adopted
here by Hutcheson, with its implied reference to a general scale o f
“ normal need” , was o f course later replaced b y the more familiar

consumers. But even then the actual prices at which commodities

tended to sell under competitive conditions seemed to bear little
relation to their “ utility” . This was sufficiently shown, the Classical
1 Frands Hutcheson, A System o f Moral Philosophy (17 5 5 ), V o L II, p. 53.
 V A L U E T H E O R Y BEFORE SMITH 35
economists believed, by the fact that the equilibrium prices o f com-
modities would not alter (or at least would not permanently alter)
merely because the purchasers* estimates o f their worth, and therefore
their demand for them, happened to increase or diminish. Given
conditions of more or less constant returns to scale for the industry
as a whole, it was only a change in the cost o f production which could
possibly bring about a change in the equilibrium price.
Fortunately, however, Smith inherited much more than this.
Smith’s eighteenth-century predecessors, dissatisfied with the existing
accounts o f the determination of value, gradually built up a set o f new
ideas which insensibly became part o f the intellectual climate in which
Smith worked. As so often happens in the history of thought, the
emergence o f a new theoretical problem was accompanied by the
emergence o f a new set o f principles and concepts capable of solving
it. Side by side with the development o f the idea o f the “natural
price” , there grew up the idea that in the last analysis it was the ex­
penditure o f social effort which conferred value upon a commodity. This -
concept o f social effort as the determinant o f value, with labour time as
its appropriate measure, is a peculiarly subtle and elusive one, as the
following sketch o f the history o f its development may help to show.
Petty, whose brilliant obiter dicta on the subject o f value formed the
starting-point for so much subsequent work, came remarkably close
to the idea that the exchange value o f a commodity is determined
by the quantity o f labour required to produce it. “ If a man can bring
to London an ounce o f Silver out o f the Earth in Peru 99 he wrote,
“ in the same time that he can produce a bushel o f Com, then one is
the natural price of the other; now if by reason o f new and more
easie Mines a man can get two ounces o f Silver as easily as formerly
he did one, then Corn will be as cheap at ten shillings die bushel,
as it was before at five shillings cceteris paribus99 Petty even sought,
in another well-known passage, to apply this theory to the problem
o f the emergence o f a value-difference between output and input
in the productive process:

“ Suppose a man could with his own hands plant a certain scope
o f Land with Corn, that is, could Digg, or Plough, Harrow, Weed,
Reap, Carry home, Thresh, and Winnow so much as the Husbandry
of this Land requires; and had withal Seed wherewith to sowe
the same. I say, that when this man hath subducted his seed out
o f the proceed o f his Harvest, and also, what himself hath both
eaten and given to others in exchange for Clothes, and other Natural
36 S T U D I E S I N THE L A B O U R THEORY OF V A L U E

necessaries; that the remainder o f Corn is the natural and true

Rent o f the Land for that year; and the medium o f seven years, or
rather o f so many years as makes up the Cycle, within which
Dearths and Plenties make their revolution, doth give the ordinary
Rent o f the Land in Com .” 1
How much English money is this “ Com or Rent” worth, Petty then
goes on to ask. “ I answer, so much as the money, which another
single man can save, within the same time, over and above his expence,
if he imployed himself wholly to produce and make it.” Petty is here
virtually resolving the value-difference between output and input
into surplus labour, much in the manner of the later Classical econo­
mists. But Petty’s account, taken as a whole, differs from theirs in
at least tw o important respects. First, it will be noted that in Petty’s
example the surplus assumes the form of rent alone, and no mention
is made o f profit. Presumably, for Petty, “ profit” in the Classical
sense of the word has not yet emerged as a distinct category o f income,
and can therefore still plausibly be subsumed under the category
rent. Second, there seems to be a certain lack o f clarity in Petty’s
mind concerning the role o f labour in the process o f value creation.
For example, in a discussion o f “ natural Standards and Measures”
of value which follows almost immediately after the striking passages
just quoted, Petty makes the following remarks:
“ All things ought to be valued by two natural Denominations,
which is Land and Labour; that is, we ought to say, a Ship or
garment is worth such a measure o f Land, with such another mea­
sure o f Labour; forasmuch as both Ships and Garments were the
creatures o f Lands and mens Labours thereupon: This being true,
we should be glad to finde out a natural Par between Land and
Labour, so as we might express the value by either o f them alone
as well or better than by both, and reduce one into the other as
easily and certainly as we reduce pence into pounds.” 2
Here the role o f labour is probably being conceived in rather a different
light—and, indeed, the whole problem of value determination is
being looked at from another point o f view.3
The nature o f one o f the main difficulties which the early Classical
these passages
from Petty. At the back o f their minds was the notion that in some
1 Quotations fro m Economic Writings, V o l. I, pp. 50-51 and 43.
2 Ibid., pp. 44-5.
3 On the o th e r hand, it co u ld possibly be argued that Petty’s procedure h ere was the
logical ancestor o f R ic a r d o ’s device fo r “ getting rid o f rent” .
 V A L U E T H E O R Y BEFORE SM ITH 37
fundamental and significant sense it was the expenditure o f labour
which conferred exchange value upon commodities. At the same time,
however, it was obvious that the price at which a commodity custom­
arily sold was sufficient not only to reward the labour which had
been used to make it, but also to pay “ the value o f the land” . How
could one say, therefore, that it was labour alone which determined
the value o f commodities? Petty, and following him, Cantillon,
tried to get out o f this difficulty by finding a “natural Par between
Land and Labour” . Others, notably Locke and Harris, did their best
to magnify the quantitative importance of labour relative to that o f
land in this respect. But these efforts to solve the problem, historically
speaking, were of significance only in so far as they assisted in laying
the foundations o f a qualitative distinction between the use o f land and
the expenditure o f labour as productive costs. The concept o f cost
upon which the mature labour theory was based necessarily excluded
land as a determinant o f value, except to the extent that its maintenance
required the expenditure o f social effort.
The seventeenth-century idea that “ labour is the source o f value” ,
as we have seen, was usually just another way o f saying that the
capitalist form o f economic organisation, by virtue o f the fact that it
was able to carry the division o f labour further, was more productive
than earlier forms. The idea, in other words, was originally associated
with a recognition o f the potentialities o f the division o f labour in
capitalist “ manufacture” (in Marx’s sense).1 As the eighteenth century
progressed, however, the idea that “ labour is the source o f value”
came to be associated with what Marx called the division o f labour
in society rather than with the division o f labour in manufacture,2
and it was largely from this association that the Classical labour
theory eventually arose. This is a point o f some importance which
requires elaboration.
If the division of labour in manufacture is a phenomenon specially
associated with capitalism, the division o f labour in society is o f course
as old as society itself. In all types o f society, individuals and groups
o f individuals have specialised in the performance o f different pro­
ductive tasks, and have in some way “ exchanged” their activities
with one another. But it is only in relatively recent times that this
mutual “ exchange” o f activities has taken the form o f the exchange
o f goods produced for a market by individuals or groups who carry on
1 See Capital, V o l. I, chapter 14.
2 For a discussion o f this distinction see ibid. , section 4.
 3« S T U D I E S I N THE L A B O U R T H E O R Y OE V A L U B

their productive activities more or less separately from one anotier.1

And it is only under capitalism that this latter form o f production and
exchange has come to dominate the w hole economic scene. With the
development o f capitalism, it became m ore and more difficult for any
single individual to supply his own wants except by supplying those
o f others, and the great majority o f people became obliged willynilly
to work for one another by engaging in the production o f goods for
the market. The social division o f labour became overwhelmingly a
division between separate producers o f goods for the market.
The two types of division o f labour, o f course, reciprocally react
upon one another in the course o f their development. The establish­
ment of the manufacturing division o f labour presupposes that a
certain stage in the development o f the social division o f labour has
already been reached; and, conversely, the manufacturing division
of labour “ reacts upon and develops and multiplies” the social division
o f labour.2 It is this latter effect which is especially important in the
present connection. Marx describes the process as follows:

“ If the manufacturing system seize upon an industry, which,

previously, was carried on in connexion with others, either as a
chief or as a subordinate industry, and by one producer, these
industries immediately separate their connexion, and become
independent. If it seize upon a particular stage in the production o f a
commodity, the other stages o f its production become converted
into so many independent industries. . . . The territorial division
of labour, which confines special branches o f production to special
districts o f a country, acquires fresh stimulus from the manufacturing
system, which exploits every special advantage. The Colonial
system and the opening out o f the markets o f the world, both o f
which are included in the general conditions o f existence o f the
manufacturing period, furnish rich material for developing the
division o f labour in society.” 3
In a society in which these processes are proceeding rapidly, and in
which the old feudal ties have been forcibly dissolved, the paramount
importance o f the economic tie which binds people to one another
as producers o f different commodities fo r the market is bound to

is in fact, as one writer put it, the “ chief cement” which binds people
1 In the M a rx ia n terminology, such goods are called “ com m odities’'. M ost non-
M arxian econom ists use this word in its ordinary d ic tio n a ry sense.
2 M arx, Capitalf V o l. I (Allen & U n w in ed n .)f p. 346.
3 I b i d pp. 346-7.
 V A L U E T H E O R Y BEFORE SM ITH 39
together.1 And the times become ripe for the emergence o f one o f the

relations between men as mutually interdependent producers o f

commodities somehow lie at the basis o f all their other social relations.
The Classical labour theory o f value was closely associated with this
notion. If we regard society as consisting in essence o f an association
o f separate producers who live by mutually exchanging the products
o f their different labours, we are likely to come to think o f the ex­
change o f these products as being in essence the exchange o f quantities
o f social labour. And if we begin thinking in these terms, we may well
eventually conclude that the value o f a commodity— i.e., its power
o f purchasing or commanding other commodities in exchange—
is a quality conferred upon it by virtue o f the fact that a certain
portion o f the labour force o f society has been allocated to its
production.
The beginnings o f the Classical emphasis on the interdependence o f
producers are to be found, appropriately enough, in Petty’s writings.
Petty was well aware o f the great importance o f the division o f
labour; and in one passage some remarks on the manufacturing
division o f labour lead him directly to a consideration o f the social
(in this case territorial) division o f labour.2 And there are other works,
written round about the turn o f the century, in which the idea o f the
social division o f labour can be found in close association with the
idea that trade consists essentially in the exchange o f labour for labour.3
But the first really suggestive British treatment o f the connection
between the division o f labour in society and the phenomenon o f
value4 is to be found in Mandeville. “ By Society” , said Mandeville,
“ I understand a Body Politick, in which Man . . . is become a Disci­
plin’d Creature, that can find his own Ends in Labouring for others,
and where under one Head or other Form o f Government each

1 Harris, op. cit., p. 15, footnote: “ T h e m utual conveniendes accruing to individuals,

fro m their betaking themselves to particular occupations, is perhaps the ch ief cem ent
that connects them together; the main source o f com m erce, and o f large political com ­
m unities.”
2 Economic Writings, V o l. II, pp. 473-4* C f. V o l. I, p. 260.
8 Sec, e.g., Sim on C lem ent, A Discourse o f the General Notions o f Money, Trade, and
Exchanges (1695), pp. 3-4; and Considerations on the East-India Trade (1701), reprinted in
Early English Tracts on Commerce (1856), pp. 591-3.
4 For a significant French treatment o f the subject see the w ork s o f Boisguillebert,
w hich are reprinted in Žconotnistes Financiers du X V III* S ih le (1843), ed. E. Daire. B ois-
guillebert’s Dissertation sur la Nature des Richesses is particularly im portant in this connec­
tion. See M arx’s interesting com m ents on Boisguillebert in Critique o f Political Economy,
pp. 59-62.
40 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

Member is render'd Subservient to the Whole. . . Z’1 In society,

to name anything else, Mandeville wrote,

“ that is so absolutely necessary to the Order, Oeconomy, and the

very Existence o f the Civil Society; for as this is entirely built
upon the Variety of our Wants, so the whole Superstructure is
made up o f the reciprocal Services, which Men do to each other.
How to get these Services perform’d by others, when we have
Occasion for them, is the grand and almost constant Sollicitude in
Life o f every individual Person. To expect, that others should serve
us for nothing, is unreasonable; therefore all Commerce, that Men
can have together, must be a continual bartering o f one thing for
another . . . Which way shall I persuade a Man to serve me, when
the Service, I can repay him in, is such as he does not want or care
for? . . . Money obviates and takes away all those Difficulties, by
being an acceptable Reward for all the Services Men can do to one
another. . . . There are great blessings that arise from Necessity;
and that every Body is obliged to eat and drink, is the Cement
o f civil Society. Let Men set what high Value they please upon
themselves, that Labour, which most People are capable o f doing,
will ever be the cheapest. Nothing can be dear, of which there is
great Plenty, how beneficial soever it may be to Man; and Scarcity
inhances the Price of Things much oftener than the Usefulness o f
them. . . .” 2

The second part o f The Fable o f the Bees, in which this passage
appears, was published in 1729, and in the same year Benjamin Frank­
lin’s Modest Inquiry into the Nature and Necessity o f a Paper Currency
appeared in Philadelphia. In this pamphlet the interdependence o f
producers in society and the consequent necessity of money are ex­
plained very much as Mandeville explained them, but out o f the

1 The Fable o f the Bees (ed. F. B . K a y e ), V ol. I, p. 347. C f. the references to the division
o f labour in V o l. I, pp. 356-8; V o l. II, p. 284; and elsewhere.
2 lb id., V o l. II, pp. 349-50. A dam Sm ith, in his fam ous Letter to the Authors o f the Edin­
burgh Review, w ritten in 1755, affirm ed that the second vo lu m e o f The Fable of the Bees
had “ g iv e n occasion to the system o f M r. Rousseau” . A n d , as i f to g iv e point to this
rem ark, S m ith included the fo llo w in g am ong the passages from Rousseau w hich he
translated in order to give readers o f the Review “ a specim en o f his eloquence” :
“ Thus m an, fro m being free and independent, becam e b y a m ultitude o f new necessi­
ties subjected in a manner, to all nature, and above all to his fellow creatures, whose slave
he is in one sense even w hile he becom es their m aster; rich, he has occasion for their
services; p o o r, he stands in need o f their assistance; and even m ediocrity does not enable
him to liv e w ith o u t them. He is o b lig ed therefore to endeavour to interest them in his
situation, and to m ake them find, either in reality or in appearance, their advantage in
labouring fo r his.” (The Edinburgh Review for 17 5 5 , 2nd edn., 1818, pp. 130-3).
 V A L U E T H E O R Y BEFORE SMITH 41
analysis there springs, quite naturally, a significant formulation o f

“ As Providence has so ordered it, that not only different countries,

but even different parts o f the same country, have their peculiar
most suitable productions; and likewise that different men have
geniuses adapted to a variety o f different arts and manufactures;
therefore commerce, or the exchange o f one commodity or manufac­
ture for another, is highly convenient and beneficial to mankind__
To facilitate exchange, men have invented M O N EY, properly
called a medium o f exchange, because through or by its means labor
is exchanged for labor, or one commodity for another. . . . Trade
in general being nothing else but the exchange o f labor for labor,
the value o f aU things is . . . most justly measured by labor.” 1
The suggestion that labour is “ more proper [than money] to be made a
measure o f values” is supported by an argument borrowed (without
acknowledgment) from Petty. “ The riches o f a country” , Franklin
concludes, “ are to be valued by the quantity o f labor its inhabitants
are able to purchase” 2— an interesting anticipation o f Smith’s “ com-
mandable labour” concept.
The notion that the exchange o f commodities is in essence the
exchange o f the labour o f the men who produce them became some­
thing o f a commonplace as the century progressed. Writers like Hume,
Gervaise and Tucker popularised the idea that commodities produced
for exchange consisted essentially o f a mass o f congealed or crystallised
social effort.3 Others, like Francis Hutcheson, developed the concept
o f the social division o f labour,4 and some, like Harris, developed it
in close association with a theory o f value which laid considerable
emphasis on labour. It gradually came to be postulated that a com­
modity possessed exchange value simply because a part o f the labour
o f society had been allocated to its production. It was not enough that
labour should have been expended upon it: it was also necessary that
this labour, as Marx was later to put it, should be “ subordinate to the
division o f labour within society” .5 The expenditure o f social labour
was slowly recognised as a unique form o f cost which was alone

1 Franklin, Works (1836 edn.), V o l. II, pp. 263- 4 and 267.

2 Ibid., p. 265. C f. the letter from Franklin to L ord Karnes reproduced in Memoirs o f the
Hon. H . Home o f Kames, V o l. II, at p. 85.
3 H um e, Essays (1889 edn.), V o l. I, pp. 293-4, 315, etc.; Gervaise, The System or Theory
o f the Trade of the World (1720), passim; R . L. Schuyler, Josiah Tucker, p. 146.
4 W . R . Scott, Francis Hutcheson, pp. 235-7.
6 Value, Price and Profit, in Selected Works, V ol. I, p. 305.
42 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

capable o f conferring exchange value upon commodities. Value

relations between commodities were revealed as reflections o f social
relations between men.
But this did not by itself dispose o f the old objection that land, as
well as labour, contributed something to the value of a commodity.
It was not until the vital distinction between wealth and value had been
properly established that it was possible to clarify the problem o f
the role o f land. It had, o f course, been appreciated from a fairly
early date that the use value o f a commodity was something different
from its exchange value: the famous water-and-diamonds illustration1
had been used by several writers before Smith, and there had been
economists before Hutcheson who had pointed out that the exchange
values o f commodities often bore little relation to their utility. But
it was some time before the distinction which Ricardo always em­
phasised between wealth (a sum of use values to the creation o f which
both land and labour contributed) and value (which was determined
by labour alone) was accurately formulated, although several early
economists had employed the distinction without being fully aware
o f what they were doing. Once land had been got rid of in this way
as a determinant o f value, it remained only to make it clear that labour
contributed value to commodities, not per medium o f the reward
paid to it but per medium o f the expenditure o f the labour itself.
The most advanced statement o f the labour theory o f value prior
to the publication o f the Wealth o f Nations was contained in a remark­
able pamphlet published anonymously about 1738— Some Thoughts
on the Interest o f Money in General. This pamphlet, to which Marx
referred on a number o f occasions, has been curiously neglected by
later historians o f economic thought. It is not entirely free from the
confusion just mentioned between the reward o f labour and the
labour itself as determinants o f value, but on the whole it represents
a considerable achievement. Consider, for example, the following
extract:
“ The true and real Value o f the Necessaries o f Life, is in Proportion
to that Part which they contribute to the Maintenance of Mankind;

other, is regulated by the Quantity o f Labour necessarily required,

and commonly taken in producing them; and the Value or Price
o f them when they are bought and sold, and compared to a common
Medium, will be govern’d by the Quantity o f Labour employ’d,
1 See below, p. 72.
 V A L U E T H E O R Y BEFORE SM ITH 43
and the greater or less Plenty o f the Medium or common Measure.

God has poured out that upon Mankind in such Plenty, that every
Man may have enough o f that without any Trouble, so that gener­
ally ’tds o f no Price; but when and where any Labour must be used,
to apply it to particular Persons, there the Labour in making the
Application must be paid for, tho’ the Water be not: And on that
Account, at some Times and in some Places, a Ton o f Water may be
as dear as a Ton o f W ine/’1
In this short passage, we are presented in swift succession with (a) a
definition o f the use value o f a commodity; (b) a statement o f the
manner in which the exchange value o f a commodity is determined
which substantially anticipates Marx’s concept o f “ socially-necessary
labour” ; (c) a statement o f the manner in which the money price,
as distinct from the exchange value, o f a commodity is determined;
and (d) an illustration o f the fact that a commodity possessing use value
does not usually possess exchange value unless labour has been be­
stowed upon it. And there is a later passage which is o f at least equal
importance, since it hardly seems possible that Adam Smith should
not have been acquainted with it:

“ In the more antient Times, when Commerce was carried on

merely by bartering one Commodity for another, I apprehend
no other Rule could be made Use o f in exchanging one Thing for
another, but the Quantity o f Labour severally imployed in produc­
ing them. One Man has imployed himself a Week in providing
this necessary o f Life, and for his Pains deserves just as much as will
Maintain him for a Week; and he that gives him some other in
exchange cannot make a better Estimate o f what is a proper Equiva­
lent, than by computing what cost himj ust as much Labour and Time;
which in Effect is no more than exchanging one Man’s Labour in
one Thing for a Time certain, for another Man’s Labour in another
Thing for the like Time. In bartering one Commodity for another,
’tis always supposed that he who gives a Thing in exchange, has
more than enough to supply his own present Use, and that he who
takes it in exchange wants it. A greater Quantity o f that Thing
in one Hand, or a greater Want o f it on the other, at one Time
more than another, will make a Variance in such exchange, but
this is only pro hoc & nunc; and such Variance supposes some com­
mon Rule to govern such exchange, when Dealers are upon an
equal Foot.” 2
1 Some Thoughtsf pp. 36-7. 2 Ibid., p. 39.
44 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

Here we have what appears to be the earliest clear statement o f that

“ rule” which Adam Smith believed to govern the exchange o f com­
modities in earlier forms o f society.1 And we have not only this,
but also a clear recognition o f the fact that this “ rule” applies to the
determination o f exchange ratios only “ when Dealers are upon an
equal Foot.” 2
The theory o f value towards which the Classical economists gradu­
ally felt their way, then, was based on the idea that labour contributed
value to commodities per medium o f the expenditure o f the labour itself—
i.e., per medium o f the proportion o f the total social effort which it
was necessary to expend in order to produce the commodities. When
a part o f the organised effort o f society (directed in accordance with
demand) was expended in the production o f a commodity, that
commodity became, as it were, impregnated with the power o f
commanding others in exchange. Nature, although she afforded
valuable assistance to man, afforded it freely, without any cost to him.3
The only true cost o f production, from the point o f view of society
as a whole, was the expenditure o f human labour. In the creation o f
wealth, certainly, labour co-operated with land, although even here
labour was regarded as the “ father” or “ active principle” o f wealth,
whereas land was visualised as the passive “ mother” . But the creation
o f value was the prerogative of labour alone. A labour theory o f value
based on these ideas, besides possessing certain technical advantages
over other varieties o f cost theory, eventually proved capable o f
illuminating in a particularly striking fashion the problem o f the
origin and persistence o f that value-difference between output and
input upon which, as we have seen, the Classical economists placed
so much stress.
1 Wealth o f Nations, V o l. I, p. 49.
2 It is perhaps also w o rth noting that the idea that “ such V ariance supposes som e
com m on R u le to g o v e rn such exchange’* w as emphasised again and again b y M arx.
3 C f. Some Thoughts, pp. 37-8: “ T h e Labour required to p lo w and to sow an A cre o f
G round, and to gather the Fruits o f it, is m uch the same w hether it yields tw o or four
Quarters o f W h eat; and i f the ordinary Produce is tw o Quarters and the com m on Price
5s. per Bushel, the tw o supernumerary Quarters are o f the N atu re o f W ater, the G ift
o f G od and o f a plentiful Season, and they should be sold fo r nothing, or the w h o le
Q uan tity be sold for 2s. 6d. the Bushel.”
 C hapter T w o

ADAM SMITH AND THE DEVELOPMENT

OF THE LABOUR THEORY
i. The Theory of Value in the “Glasgow Lectures”
HE system o f moral philosophy which Adam Smith most

T admired was that which proposed to investigate “ wherein

consisted the happiness and perfection o f a man, considered
not only as an individual, but as the member o f a family, o f a state, and
o f the great society o f mankind” .1 And it was precisely this deliberate
emphasis on the social relations between man and man which set
Smith’s own work— not only in moral philosophy but also in political
economy— apart from and above that o f so many o f his predecessors
and contemporaries. His primary interest, and that o f the brilliant
circle o f thinkers who gathered around him, was in the nature and
development o f “ civil society” ; and political economy for Smith
was the main field in which what Marx called the “ anatomy” o f this
civil society was to be sought.2 The study o f civil society was essentially
a new one, and Smith seems to have realised that it could not be
effectively pursued without a substantial reorientation o f philosophical
and economic thinking. New tasks required new tools. One $>f the
most important o f these new tools, developed quite consciously
to assist in the analysis o f the new socio-economic relations which were
then developing, was the theory o f value propounded in Book One
o f the Wealth o f Nations.
The present chapter begins with the account o f value contained
in what are known as the Glasgow Lectures,3 rather than with the more
mature theory put forward in the Wealth o f Nationst because the latter
can only be seen in its proper perspective if a genetical approach is
adopted. A study o f the evolution o f Smith’s thought on the subject
o f value, I believe, can help to make the final version o f his theory
rather more consistent and intelligible than has generally been assumed
to be possible.
1 Wealth o f Nations, V o l. II, p. 259.
2 M arx, Critique o f Political Economy (Kerr edn.), p. 11.
3 T he course o f lectures on “Justice, Police, R even u e and A rm s’* w hich Smith gave
w hile a professor at G lasgow U niversity. A student’s notes o f these lectures, taken d ow n
in 1763, w ere discovered over a century later, and published b y E dw in Cannan in 1896.
46 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

There are two important features o f the Glasgow Lectures, marking

them off to some extent from the Wealth o f Nations, which it seems
desirable to stress at the outset. The first o f these relates to Smith's
treatment of accumulation. In die Lectures, the accumulation o f
capital did not yet play the central role which it was destined to do
in the Wealth o f Nations. It is true that even in the Lectures there was
a fairly clear recognition o f the fact that accumulation is the key
to abundance: before society can reap the great advantages o f the
division o f labour, Smith said, “ some accumulation o f stock is neces­
sary” .1 And Smith also recognised in the Lectures that certain political
obstacles had to be removed before the “ accumulation o f stock” ,
and therefore the division o f labour, could be carried out on a wide
scale:

“ Under the feudal constitution there could be very litde accumula­

tion o f stock, which will appear from considering the situation
of those three orders o f men, which made up the whole body of the
people: the peasants, the landlords, and the merchants. The peasants
had leases which depended upon the caprice o f their masters;
they could never increase in wealth, because the landlord was ready
to squeeze it all from them, and therefore they had no motive to
acquire it. As little could the landlords increase their wealth, as they
lived so indolent a fife, and were involved in perpetual wars. The
merchants again were oppressed by all ranks, and were not able
to secure the produce of their industry from rapine and violence.
Thus there could be litde accumulation o f wealth at all; but after
the fall of the feudal government these obstacles to industry were
removed, and the stock o f commodities began gradually to in-
crease. *

But looking at the Glasgow Lectures as a whole, the role of accumula­

tion seems to have been conceived as a relatively subordinate one.
Although Smith’s treatment o f accumulation was even then much
in advance o f that o f his contemporaries, he did not yet visualise the
drive to accumulate as the mainspring and motive force of economic
development. The economic motive force, as will shordy appear,
was viewed in a rather different way.______________________
Related to this is the second feature o f the Glasgow Leđures to which
I want to draw attention— the fact that they contain no trace o f the
concept o f a natural rate o f profit. Certain types o f “ profit” do occa­
sionally appear in the Leđures— for example, the “ profit” expected
1 Lectures (ed. Cannan), p. 222. 2 Ibid., p. 220.
 SM ITH AND THE LABO U R THEORY 47

by the subscribers to Law’s scheme,1 the “ profit” payable to the banker

in an exchange transaction,2 and the “ profits” received by certain
West Indian sugar planters.3 And in that early revision o f part o f the
Lectures which its discoverer called “ an early draft o f the Wealth o f
Nations” we read o f the “ profits” of the traffic o f the opulent merchant,4
the “ profits and expences” o f the master o f the famous pin factory,6
and the “ profite o f the merchant” which has to be included in die
price o f a pin.6 But nowhere, so far as I can see, is there any definite
indication that these “ profits” are regarded as bearing any regular
relationship to the quantity o f stock employed by theii recipients,
“ Profit” simply means “ gain” . The amount o f “ profit” received is
variously visualised as being dependent upon the degree o f risk in­
volved, the amount o f good luck experienced, the strength o f the
monopoly position enjoyed, or the quantity and quality o f labour
performed— but nowhere is it clearly visualised as varying according
to the amount o f stock employed. The basic distinction made in the
Wealth o f Nations between the “ profits o f stock” accruing to the
capitalist employer and the “ wages o f labour” accruing to his em­
ployees is not emphasised in the Glasgow Lectures. Indeed, the general
impression we receive from the Lectures as a whole (especially from the
sections in which price and value are dealt with) is that Smith then still
considered it useful, at least as a first approximation, to regard pro­
duction as being carried on by more or less independent craftsmen
and labourers who still owned their own means o f production—
the blacksmiths, weavers, tailors, watchmakers, carpenters and their
like who so often figure in the Lectures as typical producers. Productive
units where several individuals are employed seem to be looked upon
rather as co-operative establishments consisting o f workmen who still
retain a certain measure o f independence and a “ master” who is
virtually one o f themselves. If one conceives the economic organisation
o f industry in this manner, it is unlikely that the net reward o f the
“ master” will be regarded as bearing any sort o f regular relationship
to the quantity o f stock which he happens to employ. There are,
o f course, numerous passages in the Leđures (notably those dealing
with accumulation) which indicate that Smith was already aware
o f the importance, if not the precise significance, o f the changes
in economic organisation which were taking place at this time. But
1 Lectures, p. 215. 2 Ibid., p. 221. 3 Ibid., p. 225.
4 W . R . Scott, Adam Smith as Student and Professor, p. 327.
5 Ibid., p. 331. 6 Ibid., p. 328.
48 STU D IE S IN THE L A B O U R T H E O R Y OF V A L U E

generally speaking the model o f the economy which Smith used in the
Lectures was closer to those employed by Hutcheson, Hume and Can-
dllon than to that which Smith himself was later to use in the Wealth
o f Nations.
Smith seems to have realised, rather more clearly than most o f his
predecessors, that the extension o f the social division o f labour under
modem conditions necessarily implied that the market was taking
over a number o f economic functions which had formerly been
performed by other institutions. In the new market economy, where
the basic social nexus between individuals was reflected in the fact
that the commodities which they produced exchanged for one
another on the market at certain prices, an understanding of the problem
o f “ What Circumstances regulate the Price o f Commodities” 1 began
to appear o f paramount importance. In approaching this question,
Smith, like several of his contemporaries, was evidently impressed
by the fact that the prices o f many commodities, although they
varied from day to day or from season to season in accordance with
fluctuations in supply and demand, seemed to revolve around a sort
o f average or central price. If the actual market price was at any time
either above or below this central price, it would tend automatically
to return towards it. It was this central price which Smith postulated
as the “ natural” price whose level it was the primary task of a theory
o f value to explain. The question of “ What Circumstances regulate
the Price o f Commodities” , therefore, seemed to Smith (in the
Lectures) to resolve itself into two other questions— first, what are the
constituents o f the natural price, and second, how does it come about
that the market price tends to be made equal to the natural price?
So far as the first question is concerned, it will be remembered
that Cantillon had already made a distinction between the “ market
price” o f a commodity and its “ intrinsic value” , the constituents
o f the latter being described as “ the value o f the land” plus “ the value
o f the labour” employed in production. Smith’s account in the
Lectures of the constituents o f the natural price differed from Cantillon’s
account o f “ intrinsic value” in at least one very important respect,
relating to “ the value o f the labour” . Smith linked the natural price
o f a commodity, not to the actual price of the labour employed to
make it (i.e., not to the actual reward paid to the direct producer,
whatever this might happen to be in any particular instance), but
to what he called the natural price of labour. “ A man then has the
1 Lectures, p. 173.
 SMITH A N D THE L A B O U R T H E O R Y 49
natural price o f his labour” , said Smith, “ when it is sufficient to
maintain him during the time o f labour, to defray the expense o f
education, and to compensate the risk o f not living long enough,
and of not succeeding in the business. When a man has this, there is
sufficient encouragement to the labourer, and the commodity will
be cultivated in proportion to the demand.” 1 Smith did not mean
by this, as might at first sight appear, that the natural price of a com­
modity was equivalent to the natural price o f the labour which pro­
duced it. What he meant was simply that the price o f the commodity
must be sufficiently high to “ encourage the labourer” — i.e., to yield
to the direct producer, after all his paid-out costs had been met, a
reward at least equivalent to the natural price o f his labour as so
defined. When the commodity is sold at a price sufficiently high to
do this and no more, said Smith, it is then sold at its natural price.
Smith said very little in the Leđures about the other constituents o f the
natural price, which he possibly then regarded as given. Once the level
o f the natural price o f the labour o f the direct producer was deter­
mined, the level o f the natural price o f his product was also determined.
The limitations o f this analysis— and the reason for these limitations—
are obvious enough. Smith has tacitly assumed that the direction o f
production is in the hands not o f capitalist employers who expect
to receive the natural rate o f profit on their capital, but o f more or
less independent workmen who expect to receive the natural price o f
their labour. Profit on capital has not yet emerged— or at least has not
yet been recognised by Smith as having emerged— as a general category
of income separate and distinct from the wages o f labour. Or, what
amounts to much the same thing, the socio-economic distinctions
which exist in the real world between the capitalist and the direct
producer are not yet regarded as relevant to the problem o f the
determination o f commodity prices and incomes. Both classes are
simply lumped together as “ labourers” , and it is assumed that the
price which will “ sufficiently encourage” the first is determined
according to the same principles as that which will “ sufficiently
encourage” the second. A natural rate o f profit, therefore, does not
yet appear as a separate constituent o f the natural price.
Smith's answer to the second question— how does it come about
that the market price tends to be made equal to the natural price—
begins with a discussion o f the circumstances which regulate market
prices. The market price o f a commodity, Smith argues, is regulated
1 Lectures, p. 176. C f. Hutcheson, A System o f Moral Philosophy (1755), V o L II, pp. 63-4.
50 STU DIES IN THE L A B O U R TH EORY O F V A L U E

r the
commodity” . Second, there is ‘‘the abundance or scarcity o f the
commodity in proportion to the need of it” . And third, there is
“ the riches or poverty o f those who demand” . The market price, in
other words, is determined by the relationship between the available
supply and the effective demand. And the market price and the
natural price, although they are determined according to quite
different principles, are “ necessarily connected” , in the following
way:

“ If the market price o f any commodity is very great, and the

labour very highly rewarded, the market is prodigiously crowded
with it, greater quantities o f it are produced, and it can be sold
to the inferior ranks o f people. If for every ten diamonds there were
ten thousand, they would become the purchase o f everybody,
because they would become very cheap, and would sink to their
natural price. Again, when the market is over-stocked, and there
is not enough got for the labour of the manufacture, nobody
will bind to it, they cannot have a subsistence by it, because the
market price falls then below the natural price.”
It is what Smith called “ the concurrence o f different labourers” ,
then, which makes the market price tend towards the natural price.1
Once again, the limitations o f this analysis are fairly obvious. Smith
had observed that in the real world the efforts and resources of indivi­
dual producers naturally tended to move towards those occupations
which promised the highest rewards, and that it was as a result o f this
continual movement that prices under competition tended to be ad­
justed to a level which cut out “ abnormal” gains or losses. What he
did not at this stage fully appreciate, however, was the real nature
o f the mechanism which brought about this movement and the
consequential price adjustment. In the Lectures, he visualised the main­
spring of the mechanism in terms o f the desire o f each individual
“ labourer” to secure the highest possible return for his labour. It was
not until rather later that he realised that this approach was far too
broad to be useful. The real mainspring, he eventually saw, was the
desire of each individual capitalist to secure the highest possible rate
o f profit on his capital.
There are two other features o f Smith’s treatment o f these problems
in the Lectures which must be commented upon before we pass to the
Wealth o f Nations. First, immediately after having examined “ What
1 Q u o tatio n s in this paragraph from Lectures, p p . 176-9.
 SM ITH AND THE L A B O U R THEORY 51
Circumstances regulate the Price o f Commodities” , Smith proceeded to
consider “ Money as the Measure of Value and Medium o f Exchange” .1
Now when we speak o f a “ measure” o f value, we may mean either
(or perhaps both) o f two things. W e may be using the word “ measure”
in the sense in which a foot rule is a measure of length or a spring
balance a measure o f weight. Or we may mean by “ measure o f
value” a sort o f inherent “ measure” which not only measures but
also in a sense embodies the very stuff or substance o f value.2 In the
section o f the Lectures dealing with “ Money as the Measure o f Value” ,
Smith considered money as a measure in the first of these two senses.
At the beginning o f the following section, however, he said: “ W e
have shown what rendered money the measure o f value, but it is
to be observed that labour, not money, is the true measure o f value.” 3
It has sometimes been suggested that Smith was here using the word
“ measure” in the second of the two senses just distinguished, and that
the germ o f the “ labour theory” of the Wealth o f Nations is to be found
in this remark. It is possible that there is an element o f truth in this
suggestion, but there does not appear to be any real evidence that
Smith, at the time he delivered the Lectures, regarded this idea of labour
as the “ true measure” o f value— an idea quite frequently to be met
with in the work o f eighteenth-century writers— as anything very
much more than a convenient weapon to use against the Mercantilist
notion that opulence consisted in money.4 In the Lectures Smith went
a long way towards delineating that “ natural price” o f a commodity
which he eventually came to regard as the monetary expression o f
its value. But at this stage he had not yet penetrated sufficiently far
beneath the surface o f the external phenomena o f the market to
establish contact with the deep underlying forces which ultimately
determined the “ natural price” .
The other point is this. In the Lectures, Smith prefaced his discussion
o f “ Cheapness or Plenty” with two sections containing what really
amounts to a theory o f consumption. “ All the Arts” , he said in the
second section, “ are subservient to the Natural Wants o f Mankind” ;
and in the course o f his discussion o f this theme the following state-
ment occurs:
1 Lectures, pp. 182 fF. (M y italics.)
2 C f. M arx, Theories o f Surplus Value (English edn.), p. 116. C f. also b elo w , p. 63, and
p. 64, footnote.
3 Lectures, p. 190.
4 T he fact that the idea could be used for this purpose was no doubt one o f the reasons—
although I think a subsidiary reason— for its increasing popularity in the eighteenth
century.
52 S T U D I E S I N T H E L A B O U R T H E O R Y OF V A L U E

“ To improve and multiply the materials, which are the principal

objects o f our necessities, gives occasion to all the variety o f the
arts. . . By these again other subsidiary [arts] are occasioned. W riting,
to record the multitude o f transactions, and geometry, which serves
many useful purposes. Law and government, too, seem to propose
no other object but this; they secure the individual who has enlarged
his property, that he may peaceably enjoy the fruits o f it. B y la w
and government all the different arts flourish, and that inequality o f
fortune to which they give occasion is sufficiently preserved. B y
law and government domestic peace is enjoyed and security from
the foreign invader. Wisdom and virtue too derive their lustre
from supplying these necessities. For as the establishment o f law
and government is the highest effort o f human prudence and
wisdom, the causes cannot have a different influence from w hat
the effects have.” 1

What Smith is virtually saying in this noteworthy passage is that tHe

way in which a society gets its living determines in large part the
nature both o f its social institutions and o f its ethical norms. Smith,
in common with the other members o f the so-called “ Scottish
Historical School” ,2 frequently adopted the type o f materialist
approach to the study o f society which is reflected in this passage.
To understand the general configuration o f society at any given time,
the members o f the School believed, one must look first to w hat
they called “ the mode o f subsistence” ; and, in particular, to understand
the forms o f law and government one must look first to “ the state
o f property” . The adoption o f this approach by men like Adam Smith
and John Millar was an extremely important factor in the development
o f the labour theory of value. For the labour theory o f value represents
in essence an application, to the study o f the special field o f exchange
relations, o f the fundamental idea which lies behind this materialist
approach. In order to understand these exchange relations, the labour
theory in effect maintains, one must look first to the basic production
relations which men enter into with one another in the process o f
gaining their subsistence. In its formulation in the eighteenth century
by Smith, as well as in its development in the nineteenth century

1 Lectures, p. 160.
2 See R o y Pascal, “ Property and Socie ty: T h e Scottish Historical School o f the E ig h ­
teenth C en tu ry” , in The Modem Quarterly, V o l. I, N o . 2, M arch 1938; and W . C . L eh ­
mann, “John M illar, H istorical Sociologist,” in The British Journal o f Sociology, V o L TOa
N o . 1, M arch 1952.
 SMITH A N D THE L A BO U R T H E O R Y 53

by Marx, the labour theory o f value was intimately associated with

2. The Transition to the “Wealth o f Nations"

W e are all familiar with those curious diagrams depicting several
blocks placed on top o f one another, the number o f which we are
invited to count. W e count them, and find that there appear to be,
say, six. Then, while we are looking at the diagram, its whole pattern
and perspective seem to change magically before our eyes, and counting
the blocks again we find that there are now no longer six, but seven.
A somewhat similar sort o f metamorphosis, o f a qualitative rather
than a quantitative character, occasionally occurs in the field o f
social science. An observer, looking at the society around him at a
given time, sees there a particular pattern o f relationships and cate­
gories— possibly that pattern which he has been led to expect that he
will see. Then, often quite suddenly, the old pattern appears to dis­
solve and a new and different one takes its place. The observer finds
that he has hitherto, at least up to a point, been looking at the wrong
things. But this analogy is misleading in one important respect.
In the case o f the blocks, the transformation takes place entirely in the
mind o f the beholder. The diagram remains exactly the same: there
has merely been a sort o f mental reshuffle o f the elements o f which
it is composed. In the case o f society, however, the entity which is
being observed does not remain the same, but is changing and develop­
ing all the time. What often happens, although the observer may not
be consciously aware o f it, is that he notices that a new set o f social
relationships is in actual fact emerging from the old, and, anticipating
their eventual ascendancy, places them at the basis o f a new theoretical
system.
In the Glasgow Leđures, as we have seen, Smith had employed a
traditional model o f economic organisation which visualised the
chief equilibrating movements o f efforts and resources as being
initiated by more or less “ independent” labourers desiring to maximise
the return for their labour. In the Wealth o f Nations, on the other hand,
although there are still many significant traces o f this earlier view,
these equilibrating movements are mainly visualised as being initiated
by owners o f capital desiring to maximise their profit. In every
11 have developed this them e in an article entitled “ T h e Scottish C ontribution to
M arxist S o cio lo g y,” w hich appears in Democracy and the Labour Movement (ed. John
Saville), London, 1954.
54 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

civilised society, said Smith, the landlords, labourers and capitalists

lers” , whose respec-
tive revenues— “ the rent o f land, the wages o f labour, and the profits
o f stock” 1— together make up the national income. And the real
mainspring o f economic development in such a society, Smith main­
tained, is the drive by the third o f these “ orders” to maximise their
profit and accumulate capital. If we are to understand the anatomy
o f our society, Smith was in effect saying, we must certainly start
from the simple relations which exist between men as separate but
mutually interdependent producers o f different commodities, but we
must also recognise that in each stage o f social development men
engaged in production enter into certain important class relations with
one another, in the light of which the basic economic processes o f that
stage must always be analysed. And in Britain in the latter half o f the
eighteenth century, Smith assumes, the main class relationships are those
which exist between the landlords, the labourers and the capitalists.
There is little doubt that it was his study o f what was happening
in cities like Glasgow which was primarily responsible for Smith’s
acute analysis o f the capital-labour relationship and the phenomenon
o f accumulation— an analysis far ahead of any other at the time.2
In Glasgow in the 1750’s and ’do’s, the rate at which economic tech­
niques and relationships were developing and changing was extremely
rapid (owing largely to the impact o f the tobacco trade), and the new
forms o f economic organisation which were emerging could be fairly
easily contrasted with the older forms which still existed, say, in the
Scottish Highlands, or in feudal France, or among the Indian tribes
o f North America. It was probably at some stage in the course o f
Smith’s contemplation o f these phenomena that the model used in the
Glasgow Lectures began to dissolve, and the outlines o f a new system
o f economic organisation, driven by a new mechanism, began to
form in his mind. Certain distinctions, previously unnoticed or
abstracted from, began to assume central significance— notably the
distinctions between stock and capital, between profits and wages,
and between the two social classes who lived by profits and wages.
The fact that “ in every part o f Europe, twenty workmen serve under
a master for one that is independent” 3 was seen to be o f crucial im-
1 Wealth o f Nations, V o l. I, p. 248.
2 See m y article “ A dam Smith and the Classical C oncept o f P ro fit,” m The Scottish
Journal o f Political Economy, V ol. I, N o . 2.
3 Ibid., V o l. I, p. 68. C f. the remarks on “ independence” in the Glasgow Lectures, pp. 9
and i55-<>.
 SMITH A N D THE LAB O U R TH E O R Y 55

portance. The elements o f the basic pattern o f relationships between

Nations began to emerge. And, as a consequence, the natural or average

rate o f profit on capital came to be regarded as a separate constituent
o f the natural price o f commodities.
Dugald Stewart, in the course o f a discussion o f Smith’s analysis
o f the component parts o f the price o f commodities into rent, wages
and profits, mentioned that “ it appears from a manuscript o f Mr.
Smith’s, now in my possession, that the foregoing analysis or division
was suggested to him by Mr. Oswald o f Dunnikier” .1 This may well
be true; although it may also be true that Oswald himself got the idea
from Hume, with whom he corresponded on economic problems.2
But the only question o f any real interest in this connection is whether
Smith had arrived at the idea (independently or otherwise) prior to his
visit to France in 1764.3 Professor Scott claimed that the “ early draft” ,
the date o f which he tentatively placed at 1763, contained a “ quite
explicit” statement o f the distributive division into rent, wages and
profits.4 It is true that the manuscript o f the “ early draft” contains
one passage dealing with distributive questions— but as far as I can see
only one— o f which there is no trace in the student’s notes o f the
Lectures, and that in this passage a division o f the produce between
the “ profit” o f the master and the wages o f the artisans whom he
employs is fairly clearly envisaged.5 But it is fairly clear from the
manuscript as a whole that Smith, at the time o f its compilation,
was not yet thinking in terms o f the basic pattern o f the Wealth o f
Nations. This seems a reasonable inference from Smith’s sketch o f the

1 D u gald Stew art, Collected Works, V o l. IX , p. 6. C f. V o l. X , p. 81.

2 See Memorials o f James Oswald (1825), pp. 65-71 and 122-3; and The Letters o f David
Hume (ed. J. Y . T . Greig), V o l. II, p.94
-
3 T h e point here, w hich m ay not be clear to non-specialists in the history o f econom ic
thought, is that there are certain im portant parallels betw een som e o f S m ith s doctrines
and those put forw ard b y the so-called Physiocrats, w h o flourished in France during the
third quarter o f the eighteenth century. Since Sm ith had contact w ith the Physiocrats
. during his visit to France, some ten years before the publication o f the Wealth o f Nations,
there has been considerable controversy over the question o f the extent o f their influence
upon him . T h e best short account o f die Physiocratic system is still that given b y M a rx
in the first section o f his Theories o f Surplus Value and in the chapter entitled “ From the
Critical History” w h ich he contributed to Engels’s Anti-Diihring. For m ore detailed in -

L e Mouvement Physiocratique en France de J 5 6 a IJJO (Paris, 1910).

4 Adam Smith as Student and Professor, pp. 117-18 and 319-20.
6 T h e passage appears on p. 331 o f Professor Scott’s book. E ven here, it m ight be argued
that the last four lines on p. 164 o f the Lectures w ere intended b y the student as a sum m ary
o f the passage w hich appears in the first thirteen lines on p. 331 o f Professor Scott’s book,
and that the student sim ply om itted to co p y d o w n the arithmetical illustration.
56 S T U D IE S IN T H E L A B O U R T H E O R Y OF V A L U E

section dealing with the circumstances which regulate the prices o f

Lectures. The natural price reappears there as “ that price which is

sufficient to encourage the labourer” ,1 and there is no trace in the
manuscript of any suggestion that profit at the average rate should be
regarded as one o f the constituents o f the natural price.
This does not mean that we must revert entirely to the old exagger­
ated beliefs about the degree o f Smith’s dependence on the French
Physiocrats. On many matters he did not require any instruction
from them: for example, his own basic ideas on the virtues o f laissez-
faire and free trade had apparently been formed at least as early as
1749.2 And if he learned a certain amount from Physiocrats like
Mercier de la Riviere and Nicolas Baudeau, either as a result o f
personal discussion with them during his stay in Paris or through
the books which they subsequently published, it is quite likely that
they learned just as much from him.3 From Turgot, however, whose
Reflections were probably being composed about the time o f Smith’s
stay in Paris, he may have learned rather more. The central theme o f
the second half o f Turgot’s Reflections is the idea that “ the cultivation
o f land, manufactures o f all kinds, and all branches o f commerce
depend upon a mass o f capitals, or o f movable accumulated riches,
which having been at first advanced by the Undertakers in each o f
these different classes o f labours, must return to them every year
with a steady profit” .4 Smith, as we have seen, had already been
impressed by the importance o f the “ accumulation o f stock” before

1 Scott, op. cit., p. 346.

2 Ibid., pp. 53-4.
3 Sm ith was in Paris during most o f 1766. M ercier de la Rivifcre must then have been
w ritin g his VOrdre Naturel et Essentiel des Soctftis Politiques, w hich was published in the
fo llo w in g year. Nicolas Baudeau was converted to Physiocracy under som ew hat specta­
cular circumstances in 1766, and must have begun almost im m ediately to w rite his
Premiere Introduction a la Philosophic Žconomique, w hich was also published in 1767.
It is not difficult to detect a significant change o f emphasis in these tw o w orks, m arking
them o ff to some extent from the earlier productions o f Q uesnay and M irabeau. T h e later
writers, it is true, still m o ve w ith in the same form al Physiocratic fram ew ork, but they
lay m uch greater stress on the distinction betw een the capitalist and the wage-labourers
w h o m he em ploys, and th ey are rather m ore ready to make concessions to the v ie w that
the incom e o f the capitalist norm ally contains a “ net” or “ disposable” element. These
changes m ight w ell have suggested themselves to the French writers in the course o f
personal debates w ith Sm ith, w h o w ou ld undoubtedly have criticised the official
Physiocratic doctrine (as H um e did) because o f its denial or neglect o f these points.
4 T u rgo t, Reflections on the Formation and the Distribution o f Riches (English edn., 1898),
pp. 62-3. T u rgo t proceeds to emphasise that “ it is this advance and this continual return
o f capitals w hich constitute . . . that useful and fruitful circulation w hich gives life to all
the labours o f the society, w h ich maintains m ovem ent and life in the b o d y politic.”
 SMITH A N D THE L A B O U R T H E O R Y 57
he went to France, but had probably not yet fully appreciated the
extent to
the “ natural balance o f industry” 1 was dependent upon the action
o f capitalists who, desiring to maximise their rate o f accumulation,
constantly directed their capitals into those avenues where it was
expected that they would yield the highest rate o f profit. His discus­
sions with Turgot in Paris in 1766 may have assisted him to develop
his own views on this point. In particular, the Physiocratic concept
of capital as “ advances” , upon which Turgot laid such emphasis, may
have helped Smith to see more clearly both the new role o f accumula­
tion and the significance o f the contrast between the capitalist who
made the “ advances” and the labourer to whom wages were “ ad­
vanced” . But he must have been struck at least as much with the
limitations o f Physiocratic thought as with its positive features.
Was it in fact true, as most o f the Physiocrats were then still maintain­
ing, that there was no “ disposable” element in the rewards normally
received by the master-manufacturer, the capitalist farmer and the
merchant? Certainly, at any rate in and around cities like Glasgow,
a substantial portion o f these rewards did appear to be “ disposable”
in the Physiocratic sense. This seemed evident from the fact that the
classes mentioned appeared to be already accumulating capital at a
far greater rate than would be possible according to the Physiocratic
“ privations” theory.2 The Physiocrats* attitude on this point, which
must have seemed to Smith quite arbitrary and dogmatic, may well
have assisted substantially in persuading him o f the importance o f the
phenomenon whose existence they sought to deny. The economic
theory o f Physiocracy seemed to be inconsistent with the fact o f
capitalist accumulation, and an alternative theory had to be found.
The accumulation o f capital, then, became the great axis around
which the argument o f the Wealth o f Nations revolves. The accumula­
tion of capital is presented in that work as the essential precondition
and basic cause o f the growth o f opulence. “ The annual produce
o f the land and labour o f any nation” , Smith says,
“ can be increased in its value by no other means, but by increasing
either the number o f its productive labourers, or the productive
powers o f those labourers who had before been employed. The
number o f its productive labourers, it is evident, can never be much
increased, but in consequence o f an increase o f capital, or o f the
1 Lectures, p. 180.
2 For an account o f this theory see, e.g., T u rgo t, op. cit., p. 44.
5« S T U D I E S IN TH E L A B O U R T H E O R Y OP V A L U E

funds destined for maintaining them. The productive powers o f

quence either o f some addition and improvement to those machines

and instruments which facilitate and abridge labour; or o f a more
proper division and distribution o f employment. In either case an
additional capital is almost always required.” 1
And the drive to accumulate is both mainspring and regulator o f
the mechanism o f the economic process: it is in fact the principal
medium through which the famous “ invisible hand” transmits its
beneficent power to human society. It operates in three main ways.
First and foremost, it leads to a substantial increase in real income
over time. The annual produce o f England’s land and labour, Smith
writes, is much greater now than it was either at the Restoration
or the Revolution.2 Therefore, he says, the capital annually employed
in cultivating the land and maintaining the labour must likewise be
much greater. “ In the midst o f all the exactions of government” ,
Smith writes,
“ this capital has been silently and gradually accumulated b y the
private frugality and good conduct o f individuals, by their universal,
continual, and uninterrupted effort to better their own condition.
It is this effort, protected by law and allowed by liberty to exert
itself in the manner that is most advantageous, which has maintained
the progress o f England towards opulence and improvement in
almost all former times, and which, it is to be hoped, will do so
in all future times.” 3
Second, it leads to the optimum allocation o f capital (from the point
o f view o f society) between different employments:
“ Every individual is continually exerting himself to find out
the most advantageous employment for whatever capital he can
command. It is his own advantage, indeed, and not that o f the
society, which he has in view. But the study o f his own advantage
naturally or rather necessarily leads him to prefer that employment
which is most advantageous to the society.’ 4
And third, it leads to the optimum allocation o f resources within
the particular employment so selected:-------------------------------------
1 Wealth o f Nations, V o l. I, p. 325. C f. ibid., V o l. I, pp. 2 and 259.
2 Smith refers to the period w hich had passed since the Restoration as “ the happiest
and most fortunate period o f them all” (p. 327).
3 Wealth o f Nations, V o l. I, pp. 327-8.
4 Ibid., p. 419, C f. V o l. II, pp. 127-9.
 SM ITH A N D THE L A B O U R T H E O R Y 59
“ The person who employs his stock in maintaining labour,
necessarily wishes to employ it in such a manner as to produce
as great a quantity o f work as possible. He endeavours, therefore,
both to make among his workmen the most proper distribution
o f employment, and to furnish them with the best machines which
he can either invent or afford to purchase. His abilities in both these
respects are generally in proportion to the extent o f his stock, or
to the number o f people whom it can employ.” 1

But the process o f accumulation, o f course, could not be considered

in isolation. What was accumulated had first to be produced and
distributed. The basic economic processes o f production, distribution
and accumulation are analysed by Smith with specific reference to
the new pattern o f class relationships which he had come to detect
in the society o f his day. The three “ great, original and constituent
orders” stand in certain definite relations to the economic resources
o f society and therefore to one another, and the basic economic
processes can be adequately explained only if full account is taken
o f the nature o f these social relations. Consider, for example, the
question o f the distribution o f the national income among the land­
lords, the capitalists and the labourers. The landlords’ income, rent,
“ is not at all proportioned to what the landlord may have laid out upon
the improvement o f the land” , and it costs him “ neither labour nor
care” . Rent is “ naturally a monopoly price” , which the landlords are
able to exact because they enjoy a protected monopoly o f the available
supply o f land. Their tenants, the capitalist farmers, are obliged to
pay this rent for the use o f the land; and they are able to pay it because
the selling price o f their product is generally sufficient to cover their
paid-out costs and “ the ordinary profits o f farming stock in the
neighbourhood” .2 The capitalists’ income, profit, is not proportioned
to the amount o f “ labour” which they may happen to perform.
It is bom, in the last analysis, o f the capital-labour relationship.
It owes its origin to the fact that the labour o f the workmen whom
the capitalists hire is capable o f adding sufficient value to the raw
materials to pay not only the wages o f the workmen but also “ the
profits o f their employer upon the whole stock o f materials and wages

plus because the labourers generally “ stand in need o f a master to

advance them the materials o f their work, and their wages and
1 Wealth o f Nationsf V o L I, p. 259. 2 Ibid., V o l. I, pp. 145-6 and 248.
8 Ibid., V o l I, p. 50.
6o S TU D IE S IN THE L A B O U R T H E O R Y OF V A L U E

maintenance dll it be compleated” .1 And the labourers* income, wages,

is less than the value o f the whole produce o f their labour precisely
because of the fact that they own neither capital nor land and therefore
“ stand in need o f a master” , etc.2 It was only natural that Smith should
have laid this emphasis upon the relations o f production in his account
o f the basic economic processes, since one o f his main purposes was
to analyse the effects o f the changes which were visibly occurring
in these relations in the society in which he lived. I stress this point
here because the basic feature o f orthodox economics in the post-
Classical period, as we shall see later, was its tendency to abstract
from these relations and to characterise them as irrelevant to the
analytic purpose.

3. The Theory of Value in the “ Wealth o f Nations'

(a) The “ Real Measure” o f Value
Smith’s discussion o f value in the Wealth o f Nations proceeds natur­
ally from his discussion o f the division o f labour in society. “ When
the division o f labour has been once thoroughly established” , he
writes,
“ it is but a very small part o f a man’s wants which the produce
o f his own labour can supply. He supplies the far greater part o f
them by exchanging that surplus part o f the produce of his own
labour, which is over and above his own consumption, for such
parts o f the produce o f other men’s labour as he has occasion for.
Every man thus lives by exchanging, or becomes in some measure
a merchant, and the society itself grows to be what is properly a
commercial society.” 3
1 Wealth o f Nations, V o l. I, p. 67.
2 Sm ith also emphasised the fact that “ in disputes w ith their w orkm en, masters must
generally have the advantage” . Masters, he w rote, “ are alw ays and everyw here in a sort
o f tacit, but constant and uniform com bination, not to raise the w ages o f labour above
their actual rate” (ibid., pp. 68-9).
8 Ibid., V o L I, p. 24. C f. the fo llo w in g passage from The Theory o f Moral Sentiments
(Stewart’s edn. o f the Works, V o l. I, pp. 145-6): “ A ll the m em bers o f hum an society
stand in need o f each others assistance, and are likewise exposed to m utual injuries. W h ere
the necessary assistance is reciprocally afforded from love, from gratitude, from friendship,
and esteem, the society flourishes and is happy. A ll the different members o f it are bound
together b y the agreeable bands o f lo ve and affection, and are, as it w ere, draw n to one
com m on centre o f m utual good offices. B u t though the necessary assistance should not
be afforded fro m such generous and disinterested motives, th ough am ong the different
members o f the society there should b e no m utual love and affection, the society, though
less happy and agreeable, w ill not necessarily be dissolved. S ociety m ay subsist am ong
different men, as am on g different merchants, from a sense o f its utility, w ithout any
mutual lo ve or affection; and though no m an in it should o w e any obligation, or be bound
in gratitude to any other, it m ay still b e upheld b y a m ercenary exchange o f g ood offices
according to an agreed valuation.”
 SMITH A N D THE L A B O U R T H E O R Y 6l
It is with this passage that Smith introduces his chapter “ O f the
Origin and Use o f Money” , and there is a similar reference to the
social division o f labour in the first paragraph o f the chapter which
follows— the famous chapter entitled “ O f the Real and Nominal
Price o f Commodities, or of their Price in Labour, and their Price
in Money” .
The question o f the division of labour had engaged Smith’s attention
from a very early date. It forms the main subject both o f the so-called
“ early draft” and o f two of the still earlier manuscripts discovered by
Professor Scott.1 Smith generally uses the phrase “ division o f labour”
as a blanket term which will cover both the social division o f labour
and the division o f labour in industry, although in some places he
does make a distinction between them— as, for example, where he
remarks that “ the nature o f agriculture, indeed, does not admit of so
many subdivisions of labour, nor o f such an entire seperation o f one
business from another, as commonly takes place in manufactures” .2
In the Wealth o f Nations, he sets out in the first chapter to illustrate
the effects o f what he calls “ the division o f labour, in the general
business o f society” by considering the manner in which it operates
“ in some particular manufactures” . It is commonly supposed, he
proceeds, that the division o f labour is carried furthest in some “ very
trifling” manufactures (such as that carried on in the famous pin
manufactory). This supposition, however, according to Smith,
is simply the result o f an optical illusion. In certain “ great manufac­
tures” , where the work may really be “ divided into a much greater
number o f parts, than in those o f a more trifling nature” , there are
so many workmen employed that it is “ impossible to collect them
all into the same workhouse” , and therefore the division o f labour
has been “ much less observed” .3 As Marx pointed out, Adam Smith
is here virtually assuming that “ the difference between the . . . social
division o f labour, and the division in manufacture, is merely sub­
jective” . In reality, although there are certainly numerous analogies
and connections between them, the two are essentially different.
Whereas the tie which binds together the independent labours of,
say, the dyer, the spinner and the weaver is “ the fact that their respec-

is characterised by “ the fact that the detail labourer produces no

1 Scott, op. cit., pp. 379-85. 2 Ibid., pp. 329-30.
8 Wealth o f Nations, V o l. I, pp. 5-6. M andeville, too, illustrated the effects o f the division
o f labour in general b y the exam ple o f a particular m anufacture— in this case w atch­
m aking (op. cit., V o l. II, p. 284).
62 S T U D I E S I N T H E L A B O U R T H E O R Y OF V A L U E

commodities” .1 In the second and third chapters o f the Wealth o f

w ith “ frhfi p rin c ip le w h ir h
gives occasion to the division o f labour” and the connection o f the
division o f labour with “ the extent of the market” , Smith concerns
himself almost exclusively with the division o f labour in society,
and it is out o f this analysis that his discussion o f value springs. In
every civilised society each labourer works for and is dependent
upon every other labourer. As Smith puts it, “ he supplies them
abundantly with what they have occasion for, and they accommodate
him as amply with what he has occasion for” .2 Under these circum­
stances, the possession o f a useful object upon the production o f which
labour has been expended customarily conveys to its possessor “ the
power o f purchasing other goods” : or, in other words, the object
acquires exchange value. It acquires this exchange value, Smith's
argument implies, by virtue o f the fact that it is the product o f the
labour o f an individual or group o f individuals in a society which is
characterised by and dependent upon the mutual interchange o f the
products o f the separate labours o f individuals. The exchange o f
commodities is in essence the exchange o f social activities. The value
relationship between commodities which manifests itself in the act
o f exchange is in essence the reflection o f a relationship between men
as producers. Value, as Marx was later to put it, is a social relation.
It is easy enough, of course, to see all this in the Wealth o f Nations
if one starts from the vantage-point o f Marx's Capital. But that is not
to say that it is not really there. It is true, I think, that Smith did in
fact tend to conceive o f value as an attribute which was conferred
upon a commodity by virtue o f the fact that it was a product o f social
labour. It was in this sense, indeed, and only in this sense, that Smith
regarded labour as the “ source” or “ cause” o f value.
Now it is o f the essence o f a value-principle that it should be
quantitative in character— in other words, that it should enable us to
explain not only why it is that a commodity possesses “ the power
o f purchasing other goods*’, but also why it is that it possesses this
power to the extent that it does.3 If we merely say that a commodity
possesses value because it is a product o f social labour, we have not yet
1 Capital, V o l. I, pp. 347-8. For the M arxian concept o f a “ commodity**, see above,
pp. 37-8.
2 Wealth o f Nations, V o l. I, p. 13.
3 Schum peter (.History o f Economic Analysis, p. 590) is one o f the few historians o f econo­
m ic thought w h o have recognised that these tw o things are “ not strictly the same” .
H e does not seem to have realised, h o w ever, h o w im portant this is in relation to the
interpretation o f Sm ith’s theory o f value.
 SMITH A N D THE L A B O U R T H E O R Y 63
arrived at a quantitative value-principle capable o f performing all
the tasks which lie ahead o f it. W e have simply defined the source
o f the commodity's power o f attracting other commodities in ex­
change; we have yet to explain how the extent to which it possesses
this power is regulated or determined.
O f course, if we decide to regard the labour used to produce a
commodity not only as the source o f its value but also as constituting
the very substance o f its value, so that the commodity is looked upon
as a sort o f mass of “ congealed” or “ crystallised” attractive power,1
we are much nearer a solution. W e may then conclude that a com­
modity acquires value not only because but also to the extent that it is
a product o f social labour. The extent o f its attractive power, we may
say, varies directly with the quantity o f social labour used to produce
it. In other words, we can find the determinant o f its attractive power
without seeking any further than the conditions o f production o f the
commodity itself.
But Smith did not normally look at the matter quite in this way.
It was certainly true, he believed, that a commodity came to possess
value because social labour had been expended upon its production.
But he did not regard this labour as constituting the substance o f its
value. According to his way o f looking at it, a commodity acquired
value because, but not necessarily to the extent that, it was a product
o f social labour. In order to find out how the extent o f its value was
regulated, Smith believed, one must first find out how its value ought
properly to be measured. And the measure of its value, in Smithis
opinion, could not be ascertained by looking at the conditions o f its
production. The measure o f value must be sought not in the conditions
o f production o f the commodity, but rather in the conditions o f its
exchange, just as we might decide to measure the lifting power o f a
magnet not by investigating the amount o f magnetisation it had
received but by weighing the articles it actually proved capable o f
lifting. The “ real measure” o f the exchange value o f a commodity,
said Smith, must be ascertained by referring to the actual “ power
o f purchasing other goods” which it normally manifested on the
market. Having ascertained the “ real measure” o f its value in this
manner, one could then— and only then— proceed to consider the
final problem o f what regulated or determined its value.
In a society characterised by the division o f labour, the exchange
o f commodities is in essence the exchange of social labour. This was
1 C f. above, p. 51.
64 S T U D I E S IN TH E L A B O U R T H E O R Y OF V A L U E

the simple abstraction from which Smith started. It might have been
thought, therefore, that he would have concluded that the “ real
measure** o f the value o f a commodity was the quantity o f labour
embodied in the other goods for which it would exchange on the market.
But in actual fact he concluded that the “ real measure’* o f the value
o f a commodity was the quantity o f labour for which it would exchange
on the market.1 It was in this decision to make commandable labour
rather than the labour embodied in commandable commodities the
“ real measure** o f value that most o f the difficulties associated with
Smith’s theory o f value had their origin.
What Smith was looking for, o f course, was an abstract general­
isation concerning the “ real measure** o f value which would be
applicable to all commodity exchanges in all types o f society.
The highly developed and differentiated society whose outlines Smith
delineated was peculiarly capable, as Marx noted, o f giving birth to
abstract categories which not only served as the expression o f its own
conditions o f production, but also at the same time enabled it “ to
gain an insight into the organization and the conditions o f production
which had prevailed under all the past forms o f society” .2 The concept
o f the social division of labour is a good example o f this. But even the
most abstract categories, as Marx emphasised, “ in spite o f their applica­
bility to all epochs . . . are by the very definiteness o f the abstraction
a product o f historical conditions as well, and are fully applicable
only to and under those conditions” .3 And some abstractions, it may
be added, while appearing on the surface to be safely applicable to all
epochs, are in fact so much the peculiar product o f die particular
1 T he essential point here is this: W h en ever yo u sell a co m m o d ity on the m arket
and use the proceeds to b u y som ething else, yo u are in effect exchanging labour for
labour, and it can plausibly be said that the “ real w orth ” or “ real value” o f your com m o­
d ity to yo u is measurable b y the quantity o f “ labour” w hich it can enable you to com m and
in such an exchange. B u t the “ som ething else” w hich you b u y w ith the proceeds o f the
sale o f your co m m o d ity m ay be either the present services o f a certain quantity o f labour,
o r another co m m o d ity upon w h ich a certain quantity o f labour has been expended in the
past. A n d these tw o quantities o f labour, as Sm ith w ell kn ew , need not necessarily be the
sam e: in fact th ey w ill only be the same in a society based on production b y small indepen­
dent producers o w n in g their o w n means o f production. If, then, y o u w ant to measure
the “ real value” o f y o u r com m o d ity— i.e., the quantity o f “ labour” w hich it can enable
y o u to com m and— are you to do so w ith reference to the quantity o f present labour
w hich yo u can hire w ith the proceeds o f its sale, or w ith reference to the quantity o f past
labour em bodied in the other com m od ity w hich you can b u y w ith these proceeds?
It seems to m e that i f y o u start yo u r analysis o f value, as Sm ith did, from the idea that the
exchange o f com m odities is in essence the exchange o f the different labours w hich m en
have em bodied in them , yo u r choice ou gh t logically to sw in g towards the second o f
these tw o alternatives. Sm ith, h ow ever, fo r reasons w hich I m ake an attem pt to guess
at in the text b e lo w , adopted the first alternative.
2 M a rx , Critique o f Political Economy, p. 300. 3 Ibid.
 SMITH A N D THE L A B O U R T H E O R Y *5
society which generated them that any attempt to apply them to
earlier social
The category “ profit” is perhaps an example. And the idea o f com­
mandable labour as the “ real measure” o f value seems to me to be
another. It bears very distinct marks o f the society in which it was bom
— a capitalist society in which labour power has become a commodity.
It is only in such a society that men are likely to associate the “ real
worth” o f a commodity with its power o f purchasing labour itself,
as distinct from its power o f purchasing the produđs o f labour.
Smith probably began by considering the problem o f value in
relation to the basic economic processes peculiar to a fairly developed
capitalist economy. He was concerned in particular, as we have seen,
with the analysis o f the process o f capitalist accumulation. This process,
he believed, could be properly understood only if it were conceived
in terms o f the employment o f “ productive” wage-labour by capital­
ists in successive periods o f production. In the first period, a capitalist
hired a certain number o f labourers in order to produce commodities
which he believed were likely to be in demand. These commodities
were eventually produced and put on the market, and the price at
which they were sold was usually sufficient not only to cover the
wages bill and the cost o f raw materials, etc., but also to provide
profit and rent at the “ natural” rates. Thus, assuming that no hitch
occurred in the process o f realising this “ natural” price, and assuming
also that there was no substantial increase in the wage-rate, it would
be possible for the capitalist in the next period o f production to com­
mand the services of a greater number o f “ productive” labourers
than in the period immediately past. The extent o f this potential
addition to his labour force could be regarded as a measure o f the
accumulation which it was possible for him (and his landlord) to carry
out in the new period. And what was true in the case o f each individual
capitalist was also true for the nation as a whole.
N ow it must have been obvious to Smith that a proper analysis
o f this process required the use o f a value-principle which would
reduce the various physical products involved to a common factor
and thus enable quantitative significance to be attached to the succes-

the process o f accumulation in this way, and at the general problem

o f value in the way I have described above, a possible “ real measure”
o f value must have suggested itself almost immediately. From the
point o f view o f a capitalist employer, who organises the production o f
66 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

commodities not because he wishes to consume them himself or to

them at a profit and accumulate capital,1 the most appropriate measure

o f the “ real value” o f these commodities may well appear to be
the amount o f wage-labour which the proceeds o f their sale enable
him to command in the next period o f production. The larger the
quantity o f wage-labour which the commodities will command, the
larger will be the addition he is able to make to his labour force,
and the larger, therefore, will be the amount which can be accumul­
ated. To the capitalist, then, it may well appear that “ labour” is the
“ real measure” o f the value o f the commodities— provided we mean
by “ labour” the quantity o f wage-labour which the receipts from the
sale o f the commodities will hire on the market.®
With the aid o f such a measure of value, Smith believed, it was
possible to reduce both input and output to a common factor
(“ labour”) in such a way that a quantitative value-difference between
them was revealed— a difference which could plausibly be regarded
as a measure o f the surplus or “ net revenue” yielded in the capitalist
productive process. The quantity o f labour which the national product
would purchase or command (i.e., the value o f that product) was
generally greater than the quantity o f labour required to produce it
(i.e., than the cost o f the product), and the difference between these
two quantities o f labour was a measure o f the amount o f accumulation
which it was possible for the community to carry out in the next
period o f production.3
In its origins, then, Smith's concept o f commandable labour as the
“ real measure” o f value may have been in large part a product o f his
concern with the analysis o f the particular problem o f accumulation
under capitalism. But in the Wealth o f Nations the concept is expressed
in a general form intended to be applicable to all types o f society in
1 T h at is, to use the familiar M arxist symbols, it is an M - C - M ' process and not a C - M - C
one.
2 Such a concept w o u ld clearly increase in plausibility as the proportion o f com m odities
w hich w ere in fact exchanged for labour rather than fo r oth er com m odities increased—
i.e., roughly, as com m o d ity production b y independent producers was replaced b y
capitalist c o m m o d ity production and labour pow er w as increasingly transformed into
a com m odity. T h is is not to say, o f course, that Sm ith w as correct in using this concept
35 m e P rtSiS o x m a rcsti u i c a o u i c » m u v c u , um iw v u i n u p iu p v iiy s u u jc v i l i j u ic m iiic
sort o f criticism as that w h ich M a rx m ade o f R icardo— that “ at a point w hen he [is]
o n ly as yet concerned in explaining value, and [is] therefore as y et o n ly dealing w ith the
commodity, he suddenly bursts in w i t h . . . conditions w h ich arise from the higher develop­
ment o f capitalist productive relations” ( Theories o f Surplus Value, p. 251). See b elo w ,
pp. 119-20.
8 C f. Wealth o f Nations, V o L I, p. 56.
 SMITH A N D THE L A B O U R T H E O R Y 67
which the social division o f labour has “ thoroughly taken place” .
Smiths theory o f value, I believe, cannot be properly understood
unless it is appreciated that his argument concerning the “ real measure”
consisted essentially o f an attempt to generalise the basic concept
in this way. There are two main steps in this process o f generalisation.
First, abstracting from all particular forms o f economic organisation,
Smith tries to show that in every society characterised by the division
o f labour (and not merely in a capitalist society) the “ real worth”
or “ real value” o f a commodity to its possessor depends upon the
amount o f other people’s labour which it enables him to command:
“ Every man is rich or poor according to the degree in which
he can afford to enjoy the necessaries, conveniences, and amuse­
ments o f human life. But after the division o f labour has once
thoroughly taken place, it is but a very small part o f these with which
a man’s own labour can supply him. The far greater part o f them
he must derive from the labour of other people, and he must be
rich or poor according to the quantity o f that labour which he can
command, or which he can afford to purchase. The value o f any
commodity, therefore, to the person who possesses it, and who
means not to use or consume it himself, but to exchange it for
other commodities, is equal to the quantity o f labour which it
enables him to purchase or command. Labour, therefore, is the real
measure o f the exchangeable value o f all commodities.” 1
Second, he tries to frame the basic distinction mentioned above
between the cost o f a commodity and its “ real worth” or “ real value”
in general terms, so that it applies to commodities produced in any
(and not only in a capitalist) society:
“ The real price o f every thing, what every thing really costs
to the man who wants to acquire it, is the toil and trouble o f acquiring
it. What every thing is really worth to the man who has acquired it,
and who wants to dispose of it or exchange it for something else,
is the toil and trouble which it can save to himself, and which it can
impose upon other people.” 2
1 Wealth o f Nations, V o l. It p. 32.
2 Ibid., V o l. I, p. 32. T h e italics, w h ich are o f course m ine, sufficiently indicate w hat I
believe to be the correct interpretation o f this m uch-disputed passage. It is perhaps w o rth
w hile clarifying the assumption w hich lies behind Sm ith’s rather confusing identification
o f the quantity o f labour w h ich “ it can save to h im self” w ith that w hich ‘it can impose
upon other people” , since the point has been the subject o f a certain am ount o f com m ent
(see, e.g., Cannan, A Review o f Economic Theory, p. 165). I f the possessor o f a com m odity
decides to sell it, he m ay be able to hire, say, 20 days’ labour w ith the proceeds. This is
the am ount o f labour w hich his com m odity can “ im pose upon other people” . In that
time the labourers w h o m he hires m ay be able to m ake him , say, 50 pairs o f shoes. Sm ith
68 STUDIES IN TH E L A B O U R T H E O R Y OF V A L U E

Smith then goes on to argue that his measure is in fact a real

to certain fundamental social relationships lying beneath the external

phenomena o f exchange:

“ What is bought with money or with goods is purchased by

labour, as much as what we acquire by the toil o f our own body.
That money or those goods indeed save us this toil. They contain
the value o f a certain quantity o f labour which we exchange for
what is supposed at the time to contain the value o f an equal quan­
tity. Labour was the first price, the original purchase-money that
was paid for all things. It was not by gold or by silver, but by labour,
that all the wealth o f the world was originally purchased; and its
value, to those who possess it, and who want to exchange it for
some new productions, is precisely equal to the quantity o f labour
which it can enable them to purchase or command.” 1

Finally, since it is obvious that “ a commodity which is itself contin­

ually varying in its own value, can never be an accurate measure o f
the value o f other commodities” , Smith endeavours to show that
“ labour” possesses the quality o f invariability. T o show this he is
obliged to argue that when the quantity o f goods currently paid to
the labourer for a given quantity of labour happens to vary, it is
actually the value o f these goods and not that o f the labour which
varies. “ Equal quantities o f labour” , he writes,

“ at all times and places, may be said to be o f equal value to the

labourer. In his ordinary state o f health, strength and spirits; in the
ordinary degree o f his skill and dexterity, he must always lay down
the same portion o f his ease, his liberty, and his happiness. The price
which he pays must always be the same, whatever may be the
quantity o f goods which he receives in return for it. O f diese, indeed,
itj may sometimes purchase a greater and sometimes a smaller
quantity; but it is their value which varies, not that o f the labour
which purchases them . . . Labour alone, therefore, never varying
in its own value, is alone the ultimate and real standard by which
the value o f all commodities can at all times and places be estimated
and compared. It is their real price; money is their nominal price
only.” 8
sim ply assumes that i f he had had to m ake the so pairs o f shoes himself, it w o u ld have
taken him 20 days— the same tim e as it takes the labourers. T h u s his com m od ity can
“ impose upon other people**, and therefore “ save to himself**, 20 days* labour.
1 Wealth o f Nations, VoL I, pp. 32-3. C f. Hume, Essays (1889 edn.), VoL I, p. 293.
2 Wealth o f Nations, V o L I, p. 35-
 SMITH AN D THB L A B O U R TH BORY 69
(6) The “ Regulator” o f Value
»
measure o f
exchangeable value, Smith turned in the next chapter to the problem
o f what he called the “ regulation” o f value. A commodity’s “ real
value” was measured by the quantity o f labour which it would com­
mand. But how was this “ real value” regulated? What, in other words,
determined that the commodity would command just that quantity
o f labour, and no more or less?
Smith believed, as 1 have already said, that a commodity possessed
value by virtue o f the fact that it was a product o f social labour.
How far, then, was the quantity o f social labour employed in pro­
ducing it instrumental in regulating the amount o f labour which it
would purchase or command? This was the first question which Smith
asked. It was certainly true, as he insisted again and again, that the
amount o f labour which a commodity would purchase or command
(and therefore its value) was greater or less according as the amount
o f labour required to produce it was greater or less. For example:

“ As it cost less labour to bring those metals from the mine to the
market, so when they were brought thither they could purchase
or command less labour.” 1
“ In a country naturally fertile, but o f which the far greater part
is altogether uncultivated, cattle, poultry, game o f all kinds, &c.
as they can be acquired with a very small quantity o f labour, so they
will purchase or command but a very small quantity. The low
money price for which they may be sold, is no proof that the real
value o f silver is there very high, but that the real value o f those
commodities is very low.” 2
“ The consideration o f these circumstances may, perhaps, in some
measure explain to us why the real price both o f the coarse and o f
the fine manufacture, was so much higher in those ancient, than it
is in the present times. It cost a greater quantity o f labour to bring
the goods to market. When they were brought thither, therefore,
they must have purchased or exchanged for the price o f a greater
quantity.” 8
But according to Smith this was not enough to constitute embodied
>r in his
search for a “ regulator” was a “ circumstance which can afford [a]
rule for exchanging [commodities] for one another” .4 If the quantity
1 Wealth o f Nations, VoL I, p. 34. * Ibid., VoL L pp. 186-7.
2 Ibid., VoL I, p. 246. * Ibid., V oL I, p. 49-
 70 STUDIES IN TH E LABOUR THEORY OF V A L U B

o f embodied labour was to be accepted as a “ regulator” o f ex-

only that the quantity o f commandable labour varied with and in the
same direction as the quantity o f embodied labour, but also that these
two quantities o f labour were always precisely equal. Smith therefore
proceeded to ask whether this could in fact be shown, dealing first
with “ that early and rude state o f society which precedes both the
accumulation o f stock and the appropriation o f land” and in which
“ the whole produce of labour belongs to the labourer” .1 In this state
o f things the quantity o f embodied labour would indeed tend to be
equal to the quantity o f commandable labour. “ The quantity o f labour
commonly employed in acquiring or producing any commodity” ,
therefore, would then be “ the only circumstance which can regulate
the quantity o f labour which it ought commonly to purchase, com­
mand, or exchange for.” In such a society,
“ the proportion between the quantities o f labour necessary for
acquiring different objects seems to be the only circumstance
which can afford any rule for exchanging them for one another.
If among a nation o f hunters, for example, it usually costs twice
the labour to kill a beaver which it does to kill a deer, one beaver
should naturally exchange for or be worth two deer. It is natural
that what is usually the produce o f two days or two hours labour
should be worth double o f what is usually the produce o f one
day’s or one hour’s labour.” 2
Suppose, for example, that one day’s labour is required to kill a deer,
and that the current rate o f exchange on the market is one beaver
for two deer. If under these circumstances it takes more than two
days to kill a beaver, an exchange o f beaver for deer at the ruling prices
would represent a bad bargain from the point o f view o f the beaver
hunter. Presumably in such a case there would be a tendency for
beaver hunters to shift over to deer hunting, and this shift would
continue until the price ratios were roughly equal to the embodied
labour ratios.
But today, Smith proceeds, we are concerned with a society in
which production is ordinarily carried on, not by small independent
producers like the deer and beaver hunters, but by dependent labourers
under the direction o f a capitalist master. Here the whole produce
o f labour does not belong to the labourer. “ As soon as stock has
accumulated in the hands o f particular persons, some o f them will
1 Wealth o f Nations, V ol. I, p. 49. 2 Ibid., VoL I, pp. 49-50.
 SMITH A N D THE L A B O U R TH EO RY 7*
naturally employ it in setting to work industrious people, whom they

by the sale o f their work, or by what their labour adds to the value
o f the materials.” 1 Under these circumstances, the selling price o f a
commodity must obviously be sufficient to cover not only the
labourers’ wages and the cost o f the materials, but also the profits
o f the capitalist. And once the labourer is forced to give up this portion
o f the produce o f his labour to the capitalist, the amount o f labour
required to produce a commodity is no longer equal to the amount
o f labour which it can purchase or command:
“ In this state o f things, the whole produce o f labour does not
always belong to the labourer. He must in most cases share it with
the owner o f the stock which employs him. Neither is the quantity
o f labour commonly employed in acquiring or producing any
commodity, the only circumstance which can regulate the quantity
which it ought commonly to purchase, command, or exchange
for. An additional quantity, it is evident, must be due for the
profits o f the stock which advanced the wages and furnished the
materials o f that labour.” 2
Similarly, “ as soon as the land o f any country has all become private
property” , the landlords “ demand a rent even for its natural produce” ,
so that a further portion o f the produce o f labour must be given
up by the labourer. “ This portion, or, what comes to the same thing,
the price o f this portion, constitutes the rent o f land, and in the price
o f the greater part o f commodities makes a third component part.” 3
In modem times, therefore, Smith believed, the “ regulator” o f value
was no longer the quantity o f embodied labour: it should rather be
sought by enquiring into the manner in which the equilibrium levels
o f wages, profit and rent which make up the “ natural price” were
determined. And his own enquiries into this problem seem to have
been conducted on the assumption that the constituents o f the natural
price could legitimately be regarded as independent determinants o f
value. Such, at any rate, appears to be the only possible interpretation
o f his statement that wages, profit and rent are “ the three original
sources . . . o f all exchangeable value” .4
1 Wealth o f Nations, V o l. I, p. 50. 2 Ibid., V o l. I, p. 51. 3 Ibid.
* Ibid., V o l. I, p. 54. From w hat has been said above it should be clear that it is incorrect
to suggest, as a num ber o f comm entators have done, that Sm ith intended the “ com m and-
able labour'* measure as a substitute for the em bodied labour regulator. A ll that Sm ith
said was that in ancient times the quantity o f em bodied labour regulated the quantity
o f com m andable labour (and therefore value); and that in m odern times the constituents
72 S T U D I E S I N T H E L A B O U R T H E O R Y OF V A L U E

(c) The Role o f Utility and Demand

value and exchange value were laid by Smith in the following well-
known passage:
“ The word VALUE, it is to be observed, has two different mean­
ings, and sometimes expresses the utility o f some particular object, and
sometimes the power o f purchasing other goods which the posses­
sion o f that object conveys. The one may be called Value in use*;
the other, Value in exchange’. The things which have the greatest
value in use have frequently litde or no value in exchange; and,
on the contrary, those which have the greatest value in exchange
have frequently litde or no value in use. Nothing is more useful
than water: but it will purchase scarce any thing; scarce any thing
can be had in exchange for it. A diamond, on the contrary, has,
scarce any value in use; but a very great quantity o f other goods
may frequendy be had in exchange for it.” 1
The concept o f “ value in use” implied in the water-diamond illustra­
tion is essentially the same as that implied in Hutcheson’s remark that
“ prices or values in commerce do not at all follow the real use or
importance o f goods for the support, or natural pleasure o f life” .2
The usefulness o f commodities is measured with reference to an ab­
stract scale o f “ normal need” upon which expensive goods like
diamonds are given a very low rating and free goods like water a
very high one. “ Value in use” in this sense is evidendy not even a
necessary condition o f value in exchange, let alone its determinant.
The concept o f “ value in use” with which we are more familiar
today measures the usefulness o f commodities with reference to their
power to satisfy any human want or need, whether normal or abnor­
mal. Value in use in this sense is a necessary condition o f value in
exchange: in order to possess the “ power o f purchasing other goods”
a commodity must clearly possess the power to satisfy someone’s
want. In addition, o f course, the person or persons for whom it
possesses utility must be able and willing to pay something for it.
Smith explained this fairly obvious point as follows:
“ The market price o f every particular commodity is regulated
by the proportion between the quantity which is actually brought
to market, and the demand o f those who are willing to pay the
o f the natural price regulated the quantity o f com m andable labour. T h e “ com m andable
labour” measure was clearly intended to be applicable both to ancient and to m od em
times.
1 Wealth o f Nations, V o L I, p. 30. 2 See above, p. 34.
 SM ITH A N D THB L A B O U R T H E O R Y 73
natural price o f the commodity, or the whole value o f the rent,
labour, and profit, which must be paid in order to bring it thither.
Such people may be called the effectual demanders, and their
demand the effectual demand; since it may be sufficient to effectuate
the bringing o f the commodity to market. It is different from the
absolute demand. A very poor man may be said in some sense to
have a demand for a coach and six; he might like to have it; but
his demand is not an effectual demand, as the commodity can never
be brought to market in order to satisfy it.” 1
Having made the point, Smith left it at that. His lectures at Glasgow
on “ Cheapness or Plenty” had begun with what was virtually a theory
o f consumption, but upon more mature consideration he seems to
have come to the conclusion that a detailed examination o f men’s
mental attitudes towards the things they purchased belonged more
appropriately to the theory o f moral sentiments than to the theory
o f the nature and causes o f the wealth o f nations.
It is sometimes suggested that if Smith’s attention could have been
drawn to the marginal utility theory o f value he would have wel­
comed it as affording the basis for a solution o f the so-called “ paradox
o f value” which was exemplified in the water-diamond illustration.
But quite apart from the fact that there is no evidence that Smith
ever looked upon the apparent discrepancy between “ value in use”
and “ value in exchange” as if it were a paradox requiring solution,
it cannot be too strongly emphasised that any approach to the problem
o f the determination o f value from the side o f utility and demand
(as opposed to that o f cost and supply) would have been regarded by
him as quite alien to the general outlook o f the Wealth o f Nations.
Smith makes it perfectly clear that in his opinion demand has nothing
directly to do with the determination o f exchange value. He agrees,
o f course, that demand does exercise a considerable influence in
economic life, and carefully describes at least three ways in which
it does so. First, the extent o f demand limits the extent o f the division
o f labour.2 Second, consumers’ demand regulates the amount o f
each commodity which is produced— i.e., the total quantity o f social
effort which is allocated from time to time to each different sector
o f production.3 And third, the effective demand (in conjunction with
1 Wealth o f Nations, V o l. I, p. 58. 2 Ibid., V o l. I, pp. 19-23.
8 See, e.g., ibid., V o l. I, p. 402: “ T h e quantity o f every com m od ity w hich hum an in­
dustry can either purchase or produce, naturally regulates itself in every country according
to the effectual demand, or according to the dem and o f those w h o are w illin g to pay
the w h o le rent, labour and profits w hich must be paid in order to prepare and bring
it to m arket.” C f. ibid., pp. 60 and 117.
74 S T U D I E S IN THE L A B O U R T H E O R Y O F V A L U E

the available supply) regulates the market price o f every commodity1

and natural price. But Smith insisted that the level o f the natural
price (as distinct from that o f the market price) was independent o f
fluctuations in effective demand. If the effective demand for a particular
commodity increased, then its market price would tend to rise above
its natural price. But in the absence o f monopoly or state interference
this rise in price, by virtue chiefly o f its effect on profits, would attract
new resources into the field, and the resulting increase in output
would eventually cause the market price to sink back again to the level
o f the natural price. The original increase in effective demand would
certainly have brought about an increase in the amount o f the com­
modity produced, but no change would have taken place (other
things remaining equal, and given the usual Classical assumption
o f constant returns to scale for the industry as a whole)2 in the natural
price o f the commodity. And since demand has nothing directly to do
with the determination o f the natural price, which is the monetary
expression o f value, it has therefore nothing directly to do with the
determination o f value itself.3 It would be wrong to suggest that Smith
gave clear expression to the idea that output is dependent upon the
allocation of labour (and thus upon demand) and value upon the pro­
ductivity o f labour. But enough has been said to suggest that Smith
can and should be regarded at least as one o f the most important
heralds o f this idea.

(</) The Reduction o f Skilled to Unskilled Labour

The idea that different types or grades o f labour have to be appro­
priately weighted before labour time can properly be used as a guide
to relative “ values” was, o f course, much older than the Wealth o f
Nations. In the Canonist systems, for example, the social status o f the
direct producer, his skill, and the intensity o f his labour, were fre­
quently held to play an important part in the determination o f the
“just price” o f his product. The question o f his status, however,
gradually assumed less and less importance as capitalism developed,
1 See, e.g.. the passage quoted in the text on pp. 72-3 above.
8 This assumption, w h ic h was discredited b y the w o r k o f M arshall, P igou, and other
neo-Classical econom ists, has to some extent been rehabilitated in our o w n times. See,
e .g., the famous article b y P. Sraffa in the Economic Journal o f D ecem ber 1926, and cf.
C ham berlin, The Theory o f Monopolistic Competition, pp. 85-7.
2 Sm ith did argue, how ever, that the demand for labou r, lan d and capital played an
im portant part in the determination o f the equilibrium levels o f wages, rent and p ro fit
w h ic h constituted the natural price.
 SMITH A N D THE L A B O U R T H E O R Y 75
although even in the eighteenth century some o f Smith’s predeces-

often varied to some extent with the status o f its direct producer.
Hutcheson, for example, said that the value o f commodities—
“ is also raised, by the dignity o f station in which, according to the
custom o f a country, the men must live who provide us with
certain goods, or works o f art. Fewer can be supported in such
stations than in the meaner; and the dignity and expence o f their
stations must be supported by the higher prices o f their goods
or Services/’1
Once the basic distinction between those who live by profits and those
who live by wages has been established, however, differences in
“ status” within the latter class, except in so far as they merely reflect
1 differences in skill, become more or less irrelevant to the question
o f the determination o f price.
Most o f the other differences in “ status” which formerly existed
within the broad class o f those concerned in production come to be
resolved, as it were, into the basic social division between the class
o f capitalists and the class o f wage-labourers. Broadly speaking, then,
once labour power has become a commodity, and is sold under
reasonably competitive conditions, the only differences in the quality
of labour o f which it is really necessary to take account in connection
with the problem o f value are those which are due to differences in
skill and intensity.
Even so, the problem o f estimating the relative values of different
commodities in terms o f labour, in cases where labour o f different
degrees o f skill or intensity is involved, remains difficult enough.
Smith first discussed this problem near the beginning o f his chapter
on the measure o f value:
“ It is often difficult to ascertain the proportion between two
different quantities o f labour. The time spent in two different sorts
o f work will not always alone determine this proportion. The
different degrees o f hardship endured, and o f ingenuity exercised,
must likewise be taken into account. There may be more labour
in an hour’s hard work than in two hours easy business; or in an
hour’s application to a trade which it cost ten years labour to learn,
than in a month’s industry at an ordinary and obvious employment.
But it is not easy to find any accurate measure either o f hardship
or ingenuity. In exchanging indeed the different productions o f
1 A System o f Moral Philosophy (1755), V oL II, p. 55.
76 S T U D I E S IN T H E L A B O U R T H E O R Y OP V A L U E

different sorts o f labour for one another, some allowance is com­

monly made for both. It is adjusted, however, not by any accurate
measure, but by the higgling and bargaining o f the market, accord­
ing to that sort o f rough equality which, though not exact, is
sufficient for carrying on the business o f common life.” 1
He returned to the problem again in the following chapter, in the
course o f his discussion o f the determination o f value in the 1‘early
and rude state o f society” :
“ If the one species o f labour should be more severe than the other,
some allowance will naturally be made for this superior hardship;
and the produce o f one hour’s labour in the one way may frequently
exchange for that of two hours labour in the other.
“ Or i f the one species o f labour requires an uncommon degree o f
dexterity and ingenuity, the esteem which men have for such
talents, will naturally give a value to their produce, superior to what
would be due to the time employed about it. Such talents can seldom
be acquired but in consequence o f long application, and the superior
value o f their produce may frequently be no more than a reasonable
compensation for the time and labour which must be spent in
acquiring them. In the advanced state o f society, allowances o f this
kind, for superior hardship and superior skill, are commonly made
in the wages o f labour; and something o f the same kind must
probably have taken place in its earliest and rudest period.” 2
Smith’s phraseology in these passages is no doubt a little unsatis­
factory in places, but his argument as a whole does not really seem
to be open to the accusation o f circularity which is sometimes made
against it. Smith does not suggest that the theoretical reduction o f
skilled to unskilled labour, or o f more intensive to less intensive
labour, should be carried out by referring to the rewards actually
received in the market by the labourers concerned. All he says is
(a) that in theory an adjustment must be made, and (b) that in
practice an adjustment is made, “ not by any accurate measure,
but by the higgling and bargaining o f the market” . Smith does not
enlarge upon the manner in which the theoretical adjustment should
be made, but he gives a number o f indications o f the line which he
might have followed (at least in the case o f the reduction o f skilled

1 Wealth o f Nations, V ol. I, p. 33. 2 Ibid., V o l. I, p. 49.

* This was the problem in w hich Sm ith was m ore particularly interested”. T h e reduction
o f m ore intensive to less intensive labour does not present the same degree o f difficulty
as the reduction o f skilled to unskilled labour. For one thing, differences in the average
intensity o f labou r in the various industries w ithin a single coun try are not lik ely to be
 SMITH A N D THE L A B O U R T H E O R Y 77
importance to require further elaboration. He would probably have

were due almost entirely to differences in education and training.

Most talents and skills, he believed, were acquired rather than inborn:
“ The difference o f natural talents in different men is, in reality,
much less than we are aware of; and the very different genius
which appears to distinguish men o f different professions, when
grown up to maturity, is not upon many occasions so much the
cause, as the effect o f the division o f labour. The difference between
the most dissimilar characters, between a philosopher and a common
street porter, for example, seems to arise not so much from nature,
as from habit, custom, and education.” 1
This being so, the comparatively rare cases where superior skill was
due to innate ability might be abstracted from and the adjustment
o f skilled to unskilled labour made simply by referring back to the
labour costs o f training. This seems to be what Smith has in mind
when he suggests in one o f the above-quoted passages that the superior
value o f the produce o f those possessing superior talents “ may fre­
quently be no more than a reasonable compensation for the time and
labour which must be spent in acquiring them” .2

4. The Place o f Smith in the History o f Value Theory

If the above interpretation o f Smith’s value theory is correct, it
follows that his theory has very little in common with those modem
theories which attack the problem primarily from the side o f demand.
It is therefore as a cost theory3 that its place in the history o f value
nearly as great as differences in the average degree o f skill; and w here th ey do exist th ey
are lik ely to be compensated fo r to some extent b y a num ber o f the circumstances w h ich
Sm ith considered in his treatment o f wage-differences in chapter 10 o f the Wealth o f
Nations. Such differences in intensity as remain m igh t perhaps be dealt w ith (if this degree
o f refinem ent w ere thought to be necessary) b y transferring an average w ork er from his
o w n industry to another and instructing him to w o rk there w ith his usual intensity.
T h e reduction o f the m ore intensive labour to the less intensive could then be carried out
on the basis o f a simple com parison o f relative physical productivities. T h e problem is
o bviou sly m ore im portant w h en w e are considering differences in the norm al degree
1
o f intensity in different countries. C f. M a rx t Capital, V o L (A llen & U n w in edn.), pp.
407-17 (particularly p. 409, footnote), 533-5 and 571.
1 Wealth o f Nations, V o l. I, p. 17. C f. the discussion o f the talents o f opera-singers, etc.,
o n pp. 108-9; and see also pp. 124-5.
2 C f. the passage on p. 103, ibid., w here Sm ith compares investm ent in an expensive

8 1 use the term “ cost theory1' to include any th eory w h ich approaches the problem
o f the price o f a com m odity from the angle o f the “ costs’* (including profits) w h ich
have to be covered i f it is to be w o rth a producer’s w hile to carry on producing it. Som e
“ cost theories" say n o m ore than that the equilibrium price is determ ined b y the cost
o f production; others g o further and seek fo r an ultimate determinant o f the cost o f p r o ­
duction itse lf
78 S T U D IE S IN TH E L A B O U R T H E O R Y OF V A L U E

theory must be estimated. And as a theory o f this type, it will be

their origin to Smith's selection o f commandable labour as the “ real

measure” o f value.
In the first place, Smith’s “ real measure” involved the introduction
o f an unnecessary dichotomy into value theory. One method was
used to value output and another to value input. The value o f output
was estimated in terms o f the amount o f labour which it would
purchase or command. The value of input, on the other hand, was
in effect estimated in terms o f the amount o f labour required to
produce the output. It was the difference between these two quantities
o f labour, as we have seen, which Smith regarded as an appropriate
measure o f potential accumulation. But there is, in fact, another
and much more satisfactory method o f reducing input and output
to “ labour” in such a way as to allow the emergence o f a value-
difference in the productive process to reveal itself. This alternative
method, that o f Marx (and to some extent o f Ricardo), values output
in terms o f the total quantity o f labour required to produce it, and
input in terms of the quantity o f labour required to produce the capital
goods, raw materials, and human energy used up in the production
o f the output. It is only fair to point out, however, that Marx might
not have been able to arrive at this alternative method if he had not
been able to make use o f Smith’s (and Ricardo’s) work and to learn
from their mistakes.
In the second place, as we have seen, Smith’s theory requires us to
say that the value o f labour is somehow invariable, so that a change
in the quantity of labour which a commodity will command may
always be taken to indicate a change in the value o f that commodity,
even when nothing at all has happened to the conditions o f production
o f the commodity and the only change has been in the current wage-
rate. And this is something which few people would really want to
say. As Ricardo pointed out, it is unusual, to say the least o f it, to
suggest that labour “ never varies in its own value” . The value o f labour
does in fact vary, “ being not only affected, as all other things are,
by the proportion between the supply and demand, which uniformly
v aries w ith every change in the condition o f the community, but also
by the varying price o f food and other necessaries, on which the wages
of labour are expended” .1
In the third place, and related to this, Smith’s theory requires us to
1 R icardo, Works (Sraffa’s edn.), V o L I, p. 15.
 SMITH A N D THE L A B O U R T H E O R Y 79
say that die value o f a product varies with variations in the division

on the other, irrespective o f changes in the conditions o f its production.

This, as we now know, was Ricardo’s chief objection to Smith’s
theory.1 Suppose that a particular commodity takes ten hours’ labour
to produce in Smith’s “ early and rude state o f society” , before labour
has become wage-labour. The amount o f labour which it will purchase
or command will then also be ten hours. N ow suppose that capital
is accumulated and land appropriated, but that the commodity still
requires ten hours* labour to produce. Owing to the fact that profit
and rent have now to be paid to the new classes which have become
entitled to share in the produce o f labour, the amount o f labour which
the commodity will purchase or command will now be greater than
ten hours. Although the technical conditions o f production o f the
commodity have remained the same, its “ value” in Smith’s sense
must be said to have increased. Ricardo insisted that it was quite
wrong to speak, as Smith tended to do, “ as if, when profits and rent
were to be paid, they would have some influence on the relative
value o f commodities, independent o f the mere quantity o f labour
that was necessary to their production” .2
The place which we afford to Smith’s analysis in the history o f
value theory will largely depend upon the extent to which we believe
that these characteristics o f his theory constituted a “ rejection” o f the
labour theory o f value. Many historians o f economic thought, noting
in particular Smith’s conclusion that the quantity o f labour embodied
in a commodity no longer regulated the quantity which it would
purchase or command under modem conditions, have decided—
usually, one suspects, with some relief—that Smith did in fact “ reject”
the labour theory. To argue thus, I believe, is not only to misunder­
stand the labour theory, but also to underestimate die importance
o f Smith’s contribution.
The labour theory is in essence an expression o f the idea that the
fundamental relationships into which men enter with one another
in the field o f production ultimately determine the relationships into
which they enter in the field o f exchange.3 As Marx put it in one
o f his early works: “ In principle, there is no exchange o f products—

1 R ica rd o , Works, V o l. I, pp. x x x v -x x x v ii.

2 Ibid., V o L I, p. 23, footnote.
* C £ M . H . D o b b , Political Economy and Capitalism, p. 39. See also b elow , pp. 151 ff.,
w here this point is elaborated.
8o S T U D I E S I N T H E L A B O U R T H E O R Y OR V A L U E

but there is the exchange o f the labour which co-operated in produc-

exchange o f the productive forces.” 1 When Marx came to expound

and develop the labour theory, he considered it his primary task to
demonstrate the effects o f this dependence in the real world. He en­
deavoured, in other words, to show “ how the law o f value operates”—
i.e., how the fundamental relationships between man and man in the
field o f production are reflected in their relationships in the field of
exchange in different historical periods. Under certain circumstances
and in certain historical periods, he argued, the “ law o f value” operates
immediately and directly, so that embodied labour ratios tend to be
equal to equilibrium price ratios. Under other circumstances and in
other periods it operates indirectly (in a manner analysed in Volume III
o f Capital), so that the relative quantities o f labour embodied in
different commodities, although they may not be precisely equal
to their relative equilibrium prices, may nevertheless be said ultimately
to determine them.
Smith could hardly have been expected to look at the problem
in precisely these terms. Smith’s historical task, as Marx himself
appreciated, was in fact a twofold one. First, he had to attempt “ to
penetrate to the inner physiology o f bourgeois society” . Second, he
had to “ describe the living forms in which this inner physiology
manifests itself outwardly, to show its relations as they appear on the
surface, and partly also to find a nomenclature and the corresponding
abstract ideas for these phenomena” .2 The completion o f the first
task could not very well precede that o f the second, and the wonder
is not that Smith failed to formulate the value problem in the same
way as Marx, but that he managed to proceed as far as he actually did
in the direction o f Marx’s formulation.
The labour theory o f value in fact owes so much to Smith that it
is absurd to suggest, at least without serious qualification, that he
“ rejected” it. He began correctly and logically by associating the
phenomenon o f value with the fact that in every modem society
characterised by the division o f labour individuals are related to one
another in their capacity as separate producers o f commodities,
mutually exchanging the products o f their labour on some sort o f
market. He went on from this position to search for a “ real measure”
o f value. Unfortunately he chose a measure which turned out to be
1 Poverty o f Philosophyf pp. 65-6. (Q uoted also b y D o b b , loc. cit,)
2 M arx, Theories o f Surplus Value (English edn.), pp. 202-3.
 SMITH A N D THE L A B O U R T H E O R Y 8l

unsuited to the task which it was required to perform; but at least

he should be given the credit for recognising the necessity o f invari-
ability in a measure, and for posing (and in part solving) the problem
o f the reduction o f skilled to unskilled labour. Then, as the next
step in his analysis, he asked himself to what extent, if at all, the
quantity o f labour used to produce a commodity was instrumental
in regulating its value (as estimated in the “ real measure” ). Smith
seems to have been the first to ask the question in this way, and the
fact that he asked it is much more important than the fact that he
failed to answer it satisfactorily. He came to the conclusion, which
was later accepted in essence by Ricardo and Marx, that the quantity
o f embodied labour directly regulated the value o f commodities
in pre-capitalist society, and that a change in the quantity o f embodied
labour would bring about a change in the value o f commodities
in all forms o f society. In modem times, however, since the quantity
o f commandable labour was necessarily greater than the quantity
o f embodied labour, Smith decided that value was no longer regu­
lated by the latter,1 but rather by the wages, profit and rent which
constituted the “ natural” price o f the commodity. If the fact that
Smith was the first to ask the question to which this was his final
answer illustrates his great perceptiveness, the fact that he was content
with this answer, and went straight on to enquire into the determinants
o f the “ natural” levels o f wages, profit and rent without suspecting
that he was in effect thereby giving up the search for a value-principle
which he had so brilliantly begun, illustrates that naivety which in
Marx’s opinion constituted the “ great charm” o f the Wealth o f
Nations.2
1 See, h ow ever, Wealth o f Nations, V o l. I, pp. 311-12 , w h ere em bodied labour ratios
are clearly visualised as govern in g “ the proportion b etw een the value o f g o ld and silver
and that o f goods o f any other kind” in m od em times.
2 Theories o f Surplus Value, pp. 263-4.
 C h a p t e r T hree

DAVID RICARDO AND THE DEVELOPMENT

OF THE LABOUR THEORY
i. Some General Considerations
HE embryo labour theory o f value put forward in the Wealth

T o f Nations, as we have seen, was in its origins the product

o f a capitalist society in which the social division o f labour
was being considerably developed and extended.1 Once the theory
had been formulated, however, its further evolution necessarily
became to a certain extent independent of this society. In other words,
like all theories o f this type, it became the subject o f a process which
is commonly known as “internal development” .
But the “ independence” which such a theory acquires in the course
o f its “internal development” must usually be to quite a large extent
relative and limited. The particular lines along which the labour
theory was developed after the publication o f the Wealth o f Nations
can hardly be explained purely in terms o f the intellectual contem­
plation and logical analysis o f the original theory by subsequent
economists. It is true that development of this sort cannot occur without
intellectual contemplation and logical analysis— but one does not and
cannot contemplate and analyse in a vacuum. However much the
thinker may imagine that he is operating exclusively in an inner
world o f pure thought and logic, the outer world necessarily intrudes,
wearing a number o f different and often unexpected disguises.
For example, the “ internal development” o f an embryo theory
is frequently marked by amendments designed to make it appear
self-consistent. These amendments often appear to the investigator
who introduces them simply as the end-products o f a process o f logical
analysis with which external reality has very little to do. But in
many cases what the investigator is in actual fact doing is to strip
1 N aturally I mean b y this no m ore than that the em ergence o f such a society was a
precondition o f the form ulation o f the labour theory and a potent influence on the manner
in w hich it was form ulated and developed. A s should have been m ade clear in the first
chapter, the labour theory was not ju st “ another” theory o f value, exud ed, as it w ere
b y a new fo rm o f society. It arose as the result o f attempts to p rovid e a m ore useful
explanation o f econom ic reality than the older theories had been able to do, and did in
fact represent a considerable scientific advance.
 RICARD O AND THE L A B O U R THEORY 83

away from the theory certain survivals o f outmoded concepts, reflect-

theory is ever entirely new: it is necessarily constructed to some

extent from ideological material bequeathed by earlier generations,
and in its embryo form it is therefore quite likely to embody the
remnants o f concepts more appropriate to earlier social conditions,
whose presence may make the theory appear logically inconsistent or
self-contradictory to later thinkers. The analytical process whereby
these inconsistencies or contradictions are removed may seem to these
thinkers to be purely logical in character, but in actual fact it may
mark an important step in the direction of making the theory a more
faithful expression and reflection o f contemporary reality. Thus
when Ricardo accused Smith o f erecting two inconsistent “ standard
measures o f value” ,1 and discarded one o f them, he no doubt believed
that he was merely correcting a logical error, whereas in actual fact
he was also purging the Classical theory o f value of the outmoded
idea— a product o f earlier centuries— that value is dependent upon
wages-cost.
Then again, the development o f an embryo theory such as that which
we are now considering is obviously dependent to a very large extent
upon the nature o f the main problems with which the investigator
chooses to concern himself. The very fact that this theory rather than
another is selected for development and refinement, while the choice
may possibly appear to the investigator to be purely a matter of abstract
logic or common sense, may actually reflect a recognition (intuitive
or otherwise) that this theory, when further developed, is likely
to be useful in connection with the particular problems upon which
he has decided to concentrate. The actual lines along which the theory
is developed, too, while again possibly appearing purely as the result
o f a logical process, may in fact be greatly influenced by the nature
o f the problems in connection with which it is to be used.
The way in which the tool is fashioned will naturally depend upon the
tasks it is meant to perform. And, o f course, the range of possible
choices o f problem at any given time (if not the actual choice itself)
is in the last analysis presented to the investigator by the social en-
vironment in which he works.-----------------------------------------------
Classical political economy was primarily concerned to assist
those policy-makers who aimed to increase the wealth o f nations.2
1 See b elow , pp. 98 ff.
2 C f. Sm ith, Wealth o f Nations (Caim an edn.), V o l. I, p. 395; and cf. V o l. II, p. 177.
C f. also R icard o, Works (Sraffa’s edn.) ,V o l.IV , p. 41.
84 S T U D IB S IN THE L A B O U R T H E O R Y OP V A L U E

Its main task was to discover the relevant laws relating to the origin
to
define the “ areas o f decision” open to the policy-makers.1 In the late
eighteenth and early nineteenth centuries, as was only natural, the
majority o f economists regarded the accumulation o f capital as the
basic cause o f the increase o f wealth, and their theoretical systems
were therefore primarily designed to illuminate the nature and effects
o f the accumulation process. The main problem, however, presented
itself to Smith and Ricardo respectively in two rather different ways.
Smith wished above all to attack certain social institutions which
still hindered accumulation, and certain social attitudes (such as the
old idea that spending is good for trade) which still discouraged it.
For this purpose, all that was really required was a general theoretical
analysis o f the accumulation process and an account o f the manner
in which accumulation and the increase o f wealth were related.
The question o f the effect o f accumulation upon the distributive
shares could be regarded as a secondary and subordinate one. To
Ricardo, on the other hand, the question o f the effect o f accumulation
upon the distributive shares— and in particular upon die proportions
in which the social surplus was distributed between the landlords
and the capitalists— came to assume much greater importance. For
in Ricardo’s time, as Professor Hollander has pointed out, there was
a widespread recognition o f the fact “ that England’s resisting power
depended upon the flourishing condition o f her manufactures and
upon the maintenance, undiminished, o f industrial profits” . This
sentiment, which “ pervaded business and financial circles and became
the veritable milieu o f economic thought”,2 was based on the assump­
tion that profits constituted by far the most important source o f capital
accumulation.3 Other things being equal, then, it was better that
the social surplus should consist o f profit rather than o f rent. To
define the appropriate “ areas o f decision” , therefore, it was necessary
to work out, in much more detail than Smith had done, the laws
which showed how rent and profit would behave in “ the natural
course o f things” 4 as capital accumulated and society progressed in
wealth and prosperity. This was a problem with important political
implications at the time, since the stru|
and the industrial capitalists over such vital issues as the Com Laws
1 C f. B . S. Keirstead, The Theory o f Economic Change, p. 32, and R icard o, Works, I,
p. 106, footnote.
2 J. H. H ollander, David Ricardo: A Centenary Estimate, p. 16.
8 C f R icard o, Works, IV , pp. 37 and 234. * R icard o, Works, I V , p. 21.
 R IC A R D O A N D THE L A B O U R T H E O R Y 85
and parliamentary reform was growing in intensity. To solve this

will show how closely the development o f Ricardo's ideas on value

theory was associated with his attempts to find an adequate solution
o f it.
Finally, the development o f such a theory is often marked by
amendments deliberately designed to bring it into closer correspon­
dence with the facts. Not only must the logical inconsistencies be dealt
with; not only must the theory be developed with specific reference
to the particular problems which it is desired to solve with its aid;
but it is also necessary to remove any inconsistencies which may
emerge between the theory and the facts. And here again the external
world necessarily intrudes, simply because the facts themselves are
apt to change. When the facts change the theory must, if possible,
be adapted to fit them. At certain stages o f development, therefore,
it may become necessary to attempt to disentangle the essence o f the
theory from the particular context o f problems and facts in which it
has previously appeared and to reapply it to a new situation.1 I am
speaking here, o f course, o f real inconsistencies which emerge between
an old theory and new facts. The process whereby apparent inconsis­
tencies between a theory and the facts which it is being used to explain
are removed is very different. Ricardo, for example, observing that
in the real world the equilibrium price ratios o f the majority o f
commodities were not in fact precisely equal to their embodied
labour ratios, characterised this as a “ contradiction” ,2 and attempted—
unsuccessfully— to resolve it. Marx, however, building on Ricardo's
work, was able to deal satisfactorily with this particular problem;
and it would be wrong to suggest that developments in the external
world since Ricardo's time were directly or primarily responsible
for his ability to do so.
There is one other general point, also o f importance in the con­
sideration o f Ricardo's development o f the labour theory, which
may conveniently be mentioned here. The development o f the labour
theory in the Classical period was intimately associated with the
development o f a new method o f political economy. Most o f the

by considering what Marx called the “ living aggregate”— e.g.,

“ population, nation, state, several states, etc.” B y breaking down
this aggregate into “ less and less complex abstractions” , they usually
1 See the Preface to the present work. 2 See below, pp. 112 ff.
86 S T U D I E S IN T H E L A B O U R T H E O R Y OF V A L U E

arrived in the end at “ certain leading, abstract general principles,

lue, etc.” Then, as Marx put it,

“ as soon as these separate elements had been more or less established

by abstract reasoning, there arose the systems o f political economy
which start from simple conceptions, such as labour, division o f
labour, demand, exchange value, and conclude with state, inter­
national exchange and world market.” 1

In the early chapters o f the Wealth o f Nations, for example, we find a

deliberate attempt to w ork upwards from “ simple conceptions,
such as labour, division o f labour, demand, exchange value” towards
the “ living aggregate” . And Smith’s Classical successors— in particular
Ricardo— followed in his footsteps in this respect. As might be
expected, the development o f the new concept o f value— “ the most
general and therefore the most comprehensive expression o f the
economic conditions o f commodity production” , as Engels once called
it2— greatly encouraged and was in turn encouraged by the develop­
ment o f this new method o f political economy.

2. Ricardo's Treatment o f Value Prior to 18 17

During the first few years in which he wrote on economic questions,
Ricardo seems to have concerned himself primarily with currency
problems and only incidentally with matters o f general theory. In
particular, o f course, he was interested in the analysis of the currency
and exchange phenomena which followed the suspension o f specie
payments by the Bank o f England in 1797. Concentrating as he did
on problems o f this type, he could hardly have been expected to give
more than passing attention to the question o f the general causes
o f changes in the relative values o f commodities. Nevertheless it is
possible to reconstruct some o f his early views on the latter question
from the material which he wrote in this period.
On the first page o f his pamphlet, The High Price o f Bullion (1810),
Ricardo puts forward a crude theory of value:

“ Gold and silver, like other commodities, have an intrinsic

value, which is not arbitrary, but is dependent on their scarcity,
the quantity o f labour bestowed in procuring them, and the value
of the capital employed in the mines which produce them.” 3
1 M arx, Critique o f Political Economy (Kerr edn.), pp. 292-3.
2 Anti-Duhring (English edn.), p . 340. 3 Works, III, p. 52.
 R IC A R D O A N D THE L A B O U R T H E O R Y 87

But naturally it is not this “ intrinsic value” which primarily interests

him at
moment to discuss the causes o f the depreciation o f the paper currency.
The paper currency, however, is (or ought to be) the representative
o f a “ standard measure o f value” , and “ it can only be by a comparison
to this standard that its regularity, or its depreciation, may be esti­
mated” . Here, then, in a rather special context, we are first introduced
to the vexed question o f the “ invariable measure o f value” . “ A measure
o f value” , says Ricardo in a footnote,
“ should itself be invariable; but this is not the case with either
gold or silver, they being subject to fluctuations as well as other
commodities. Experience has indeed taught us, that though the
variations in the value o f gold or silver may be considerable, on a
comparison o f distant periods, yet for short spaces o f time their
value is tolerably fixed. It is this property, among their other excel­
lencies, which fits them better than any other commodity for the
uses o f money. Either gold or silver may therefore, in the point
o f view in which we are considering them, be called a measure o f
value.” 1
Here certain implicit assumptions are made which were later to prove
o f some importance in connection with Ricardo’s development o f the
theory o f value. If the exchange value o f a commodity be defined,
with Smith, as the power o f purchasing other goods which it conveys
to its owner, what does it mean, exactly, to say that the value o f a
commodity used as.a measure o f this exchange value is “ tolerably
fixed” ? All it can mean is that, if there is an alteration in the rate at
which the commodity whose exchange value is being measured
exchanges on the market for the commodity being used as a measure,
then this alteration can be said to be due to some cause operating solely
on the commodity being measured. To say this, we must be able to
assume that “ value” is not merely a relation (as Bailey was later to
suggest), but that it is a quality which somehow inheres in or is attached
to each individual commodity and which can therefore alter quite
independently o f changes in the value o f other commodities. Thus
when two commodities alter in relative (or “ exchangeable”) value,
we must be able to assume that the alteration is the net resultant o f
changes which have taken place in the individual “ values” o f one or
both o f the commodities, each considered in isolation.
The nature o f Ricardo’s main enquiries at this time did not call
1 Works, in, p. 65. cf. p. 391.
88 S T U D I E S IN T H E L A B O U R T H E O R Y O F V A L U E

for any very profound researches in this field, and there is no indication

in Smith’s account of value. In a few places, however, Ricardo’s

early statements foreshadow the lines which his subsequent enquiries
were to follow. In his Notes on Bentham (1810-11), for example, at a
point where Bentham expresses the opinion that all value is founded
on utility, Ricardo comments:

“ I like the distinction which Adam Smith makes between value

in use and value in exchange. According to that opinion utility is
not the measure of value.” 1

And in other places we find the beginnings o f the important distinction

which Ricardo was later to make between wealth and value. “ The
rise o f prices and the increase o f riches” , he says, “ have no necessary
connection. Machinery adds to the real riches o f a community at
the same time that prices fall.” 2 But Ricardo still accepts without
question Adam Smith’s doctrine that a rise in wages will lead to a rise
in prices,8just as he still accepts Smith’s view that profits are lowered
by the competition of capitals.4 When considered in the light of subse­
quent events, the years before 1815 were notable rather for the emer­
gence o f the basic problem o f distributional shares to prominence
in Ricardo’s mind, than for the development of the theory o f value
which was destined to play such an important part in the solution
o f this problem.
Ricardo’s Reply to Bosanquet was published in January 1811, and his
next published work, the Essay on the Profits o f Stock, did not appear
until February 1815. Apart from the first four or five months o f 1811,
during which Ricardo apparently wrote the appendix to the fourth
edition o f his High Price o f Bullion and a number o f manuscript notes
on monetary problems, the gap has to be filled by referring to
Ricardo’s correspondence— in particular, his correspondence with
Malthus, which dates from June 1811. For more than two years this
correspondence was concerned almost exclusively with matters arising
directly out o f a criticism by Malthus (in the Edinburgh Review o f
February 1811) o f Ricardo’s two currency pamphlets. The main

or “ deficient” state of the currency could influence the rate o f ex­

change. Ricardo argued that a “ relatively redundant currency” is the
1 Works, HI, p. 284. In the manuscript, “ m easure” replaces “ source” .
2 Ibid., HI, p. 334. C £ p. 308. 3 Ibid., in , p. 270. 4 Ibid., HI, p. 92.
 R IC A R D O A N D THE L A B O U R T H E O R Y 89
“ invariable cause” o f an unfavourable balance o f trade.1 Malthus

change are sure \ but maintained that “ they are slow compared with
the effects o f those mercantile or political] transactions, not connected
with the question o f currency” .2 Eventually, however, the correspon­
dence (and no doubt the personal conversations) between the two
men took a different turn, and an important new problem emerged.
Unfortunately two key letters from Malthus written at this crucial
point in the discussions are among those which are still missing,3
but judging from Ricardo’s replies it seems that Malthus probably
raised a new point— that since 1793 there had been both an increase
in capital and an increase in the rate o f profit, whereas according to the
orthodox Smithian theory, which was still accepted by Ricardo as
well as by Malthus, an increase in capital should have been acccom-
panied by a fall in the rate o f profit. This fact could only be explained,
Malthus may have argued, by recognising that there had been an
increase in the demand (particularly from overseas) for British com­
modities, and that this had raised the value o f these commodities.
In that case, the concurrent increase in the quantity o f money—
and dius the “ relatively redundant currency” — might well have been
not the cause o f the increase in value (as Ricardo had in effect been
maintaining) but rather the effect o f it.4 At any rate, Ricardo apparently
felt himself obliged at this stage to provide an alternative explanation
o f the fact that an increase in capital had been accompanied by an
increase in profits. “ I have little doubt” , he wrote,
“ that for a long period, during the interval you mention, there has
been an increased rate o f profits, but it has been accompanied with
such decided improvements o f agriculture both here and abroad,—
for the French revolution was exceedingly favorable to the increased
production o f food, that it is perfectly reconcileable to my theory.
M y conclusion is that there has been a rapid increase o f Capital
which has been prevented from shewing itself in a low rate o f interest
by new facilities in the production o f food.” 6
Here the Smithian idea that the rate o f profit tends to be lowered by
the competition o f capitals is married with the current idea, then
1 Works, V I, p. 26. 2 Ibid., V I, p. 82.
8 Those to w h ich R icard o ’s letters o f 10 A ugust and 17 A ugu st 1813 are replies. See
ibid., pp. 92-5.
4 C f. the interpretation given b y G. S. L. T u cker in his article " T h e O rig in o f R icard o’s
T h e o ry o f Profits” (Economica, N o ve m b er 1954). This article appeared after the present
chapter was written.
3 Works, V I, pp. 94 5
- *
90 STU D IE S IN THE L A B O U R T H E O R Y OF VALU E

very prevalent in business circles, that a decrease in the price o f com

this time onwards, the question o f the effect o f an increase in capital

on the rate o f profit was destined to be one of Ricardo’s primary
concerns.
Ricardo’s personal discussions with Malthus on this topic continued
(although their coirespondence directly relating to ii was not resumed
until June 1814), and by February 1814 his views had developed to
the point where he was able to set them down on paper. The manu­
script o f these “ papers on the profits o f Capital” 2 has not been found,
but it is evident, from a description which Ricardo gave to Trower
o f the “ subject in dispute” between himself and Malthus, that they must
have contained the essential elements o f the theory of profit which
Ricardo was later to put forward in the first part o f his Essay on Profits.
“ I contend” , wrote Ricardo on 8 March 1814,

“ that the arena for the employment o f new Capital cannot increase
in any country in the same or greater proportion than the Capital
itself, unless Capital be withdrawn from the land[,] unless there be
improvements in husbandry,— or new facilities be offered for the
introduction o f food from foreign countries;— that in short it is
the profits o f the farmer which regulate the profits o f all other
trades,— and as the profits o f the farmer must necessarily decrease
with every augmentation o f Capital employed on the land, provided
no improvements be at the same time made in husbandry, all other
profits must diminish and therefore the rate o f interest must fa ll.. . .
Nothing, I say, can increase the profits permanently on trade, with
the same or an increased Capital, but a really cheaper mode o f
obtaining food.” 8

Here, for the first time, Ricardo substitutes a new explanation o f

the tendency o f the rate o f profit to fall, based on the law o f dimin­
ishing returns in agriculture,4 for that o f Adam Smith, which he
had hitherto accepted without serious question.
At this time, then, Ricardo was arguing that the diminishing
returns in agriculture which normally accompanied accumulation
(in the absence o f “ improvements in husbandry”) would necessarily
1 I f this interpretation is correct, it fo llo w s that R icardo had not y et arrived at his o w n
theory o f profit— although the train o f th ou gh t w hich soon resulted in that th eory had
definitely been started.
2 Works, IV , p. 3. 3 Ibid., V I, pp. 103-4.
* R icard o had lo n g been f a m ilia r w ith the concept o f diminishing returns: cf. Works t
m , p. 287.
 R IC A R D O A N D THE L A B O U R T H E O R Y 91

operate to reduce the profits o f the capitalist farmer, and that they
would therefore also operate to reduce the general rate o f profit on
capital, since “ it is the profits o f the farmer which regulate the profits
o f all other trades” . Mr. Sraffa has suggested that the “ rational founda­
tion” o f this principle o f the determining role o f agricultural profits
is to be found in Ricardo’s assumption that in agriculture the same
commodity, com, constitutes both input and output, so that the
rate o f agricultural profit is independent o f price changes. Thus if
the rate o f profit is to be equal in all trades, “ it is the exchangeable
values o f the products o f other trades relatively to their own capitals
(i.e., relatively to com) that must be adjusted so as to yield the same
rate o f profit as has been established in the growing o f com” .1 It
does seem quite possible that Ricardo then had something like this in
mind. If one starts off with this “ com-ratio” theory o f agricultural
profits, there will undoubtedly be a temptation, when one is discussing
the causes o f a secular decline in the general rate o f profit, to speak
of agricultural profits as leading or regulating this decline.2
The arena for the employment o f a theory o f profit was greatly
increased about this time by the growth o f public interest in the Com
Law question, and when the correspondence between Ricardo and
Maithus was resumed in June 1814 it was this question which was
uppermost in their minds. When Malthus argued, in a letter which is
still missing, that it was by no means certain that restrictions on the
importation o f com would tend to lower the rate o f profit, Ricardo
replied by putting forward (inter alia) the following general pro­
position:
“ The rate o f profits and o f interest must depend on the proportion
o f production to the consumption necessary to such production,—
this again essentially depends upon the cheapness o f provisions,
which is after all, whatever intervals we may be willing to allow,
the great regulator o f the wages o f labour.” 3
Malthus argued in reply that “ this rate o f production, or more defin­
itely speaking, the proportion o f production to the consumption
necessary to such production, seems to be determined by the quantity
o f accumulated capital compared with the demand for the products o f
capital, and not by the mere difficulty and expence o f producing
1 Works, I, p. x x x i.
2 This proposition is dependent for its plausibility upon the further assumption that the
com -m argin is fixed b y the level o f the population and its subsistence needs at any given
tim e. C f. Works, IV , p. 24, footnote.
3 Ibid., V I, p. 108.
92 S T U D IE S IN THE L A B O U R T H E O R Y OP V A L U E

com” .1 Therefore, since restrictions on importation (as Malthus

believed) “ must necessarily be attended with a diminution o f capital” *
it seemed to follow that there would be a tendency for these restrictions
to cause profits to rise. Ricardo replied, first, that effective demand
“ cannot augment or long continue stationary with a diminishing
capital” 3 (thus initiating a well-known debate on “ Say’s Law” 4);
and second, that a diminution o f capital would in fact operate on
profits by way o f its effect upon “ the state o f the cultivation o f the
land” ,5 rather than by way of the mechanism which Malthus had
postulated. This phase o f the controversy (which ended in February
1815 with the publication o f Malthus’s two pamphlets on rent and
the Com Laws and Ricardo’s Essay on Profits) culminated in the
following statement by Ricardo o f his views on the manner in which
accumulation and diminishing returns operated on profits:

“ Accumulation o f capital has a tendency to lower profits. Why?

because every accumulation is attended with increased difficulty
in obtaining food, unless it is accompanied with improvements in
agriculture; in which case it has no tendency to diminish profits.
If there were no increased difficulty, profits would never fall, be­
cause there are no other limits to the profitable production o f
manufactures but the rise o f wages. If with every accumulation o f
capital we could tack a piece o f fresh fertile land to qut Island,
profits would never fall.* 6

And in the same letter Ricardo recognised, significantly enough,

that “ the consideration o f money value” might be the foundation
o f the difference between himself and Malthus on the Say’s Law
question.7
Up to this point, Ricardo had used the law o f diminishing returns
in agriculture only in connection with the theory o f profit, and as
far as we know had not yet attempted to apply it to the theory o f
rent.8 The extant correspondence between Ricardo and Malthus up
to January 1815 contains no specific reference to rent, although
in a letter o f 30 August 1814 Ricardo remarked that the report o f
the Lords committee on the com question, which had just appeared,
“ discloses some important facts” ,9 and there is a reference in a letter
o f 6 February 1815 which shows that at least one aspect o f the subject
1 Works, V I, p. i i i . 2 Ibid., V I, p. 116. 3 Ibid., V I, p. 114.
4 R o u g h ly , the idea that “ supply creates its o w n dem and” .
5 Works, V I, p. 133. Cf. p. 119. 6 Ibid., V I, p. 162. 7 Ibid., V I, p . 164.
3 See Sraffa’s account in ibid., IV , pp. 7-8. 9 Ibid., V I, p. 130.
 RICARD O AN D THE LABO UR THEORY 93
had already been discussed between them.1 In any event, upon reading
Malthns’s Inquiry into Rent R j rarHn was able to put his own ideas
down on paper in a very short time, and his Essay on Profits, in which
his own theory o f profits was combined with a variant o f Maithus’s
theory o f rent, appeared only three weeks after the Inquiry.
The main theoretical argument o f the Essay, which is designed
to explain the effect o f the accumulation o f capital upon the propor­
tions in which the social surplus is distributed between rent and profit,
is developed in two stages. In the first, the analysis is conducted on
the assumption that the price o f com and the wages o f labour remain
stationary. As capital accumulates and population increases, it is
necessary to resort to less fertile or less well-situated land (or to employ
additional capital on the land already being cultivated) in order to
provide more food. The law o f diminishing returns comes into
operation, and as the margin extends the amount o f resources required
to produce a unit o f raw produce on the marginal land gradually
increases. By a familiar argument it is shown that rent will then arise
(and gradually increase) on the non-marginal land, and that the rate
o f profit in agriculture will decline. And since “ it is the profits o f the
farmer which regulate the profits o f all other trades” , this w ill cause a
decline in the general rate o f profit on capital. In the second stage
o f the argument, the assumption that the price o f com and the wages
o f labour remain stationary is dropped, and the manner in which
accumulation and diminishing returns operate on profit by way o f
their effect upon wages is considered. Ricardo argues that “ the sole
effect . . . olf the progress o f wealth on prices, independently o f all
improvements, either in agriculture or manufactures, appears to be
to raise the price o f raw produce and o f labour, leaving all other
commodities at their original prices, and to lower general profits in
consequence o f the general rise o f wages” .2 The effects worked
out on the assumption o f stationary prices and wages, therefore,
are reinforced when the variations in prices and wages which must
actually accompany accumulation are taken into account.
As an integral part o f the second stage o f his argument, Ricardo
put forward a rudimentary theory o f exchange value which directly

its production:
“ The exchangeable value o f all commodities, rises as the difficulties
o f their production increase. If then new difficulties occur in the
1 Works, VT, p. 173. 2 Ibid., IV , p. 20.
94 STU D IE S IN THE LABO UR T H E O R Y OF VALUE

production o f com, from more labour being necessary, whilst

no more l a b o u r is required to produce gold, silver, cloth, linen. &c.
the exchangeable value o f com will necessarily rise, as compared
with those things. On the contrary, facilities in the production
o f com, or o f any other commodity of whatever kind, which shall
afford the same produce with less labour, w ill lower its exchange­
able value. Thus we see that improvements in agriculture, or in the
implements o f husbandry, lower the exchangeable value o f com;
improvements in the machinery connected w ith the manufacture
o f cotton, lower the exchangeable value o f cotton goods; and
improvements in mining, or the discovery o f new and more abun­
dant mines o f the precious metals, lower the value o f gold and silver,
or which is the same thing, raises the price o f all other commodities.
Wherever competition can have its full effect, and the production
o f the commodity be not limited by nature, as in the case with some
wines, the difficulty or facility of their production will ultimately
regulate their exchangeable value.” 1
Here for the first time in Ricardo’s work the basic idea lying behind
the mature theory o f value which he was to develop in the Principles
is set forth. Its formulation in the Essay is not unambiguous; but at
any rate Ricardo had sufficient confidence in it to reject his earlier
view— which he had held at least as late as July 18142— that “ the price
o f com regulates the prices o f all other things” .3 And Ricardo’s
rejection o f this view was o f course a cornerstone o f the argument
o f the Essay, since if the price o f com in fact regulated the prices of
all other things profits might not fall with a general rise in wages.
In the Principles, the argument that “it is the profits o f the farmer
which regulate the profits o f all other trades” is dropped, although,
as Mr. Sraffa puts it, “ the more general proposition that the produc­
tivity o f labour on land which pays no rent is fundamental in de­
termining general profits continues to occupy a central position” .4
Accumulation and diminishing returns are assumed to act on profits
through the medium o f their effect on the general level o f wages.
“ In all countries, and all times,” says Ricardo, “ profits depend on the
quantity o f labour requisite to provide necessaries for the labourers,
on that land or with that capital which yields no rent.” 5 Or, as he
states it earlier, profits depend upon the “ proportion o f the annual
1 Works, TV, pp. 19-20. C f. Wealth o f Nations, Vol. I, p. 35: “ A t all times and places that
is dear w hich it is difficult to com e at, or which it costs m u c h labour to acquire; and that
cheap w hich is to be had easily, or w ith very little labour.”
2 Works, V I, p. 114. 3 Ibid., IV, p. 21, footnote. 4 Ibid., I, p. x x x iii.
5 Ibid., I, p. 126.
 R IC A R D O A N D THE L A B O U R T H E O R Y 95
labour o f the country [which] is devoted to the support o f the labour-

o f profit upon “ the proportion o f production to the consumption

necessary to such production” 2 has been in effect re-cast in terms o f
the labour theory o f value, consumption being valued in terms o f
the quantity of labour required to produce the “ necessaries for the
labourers” , and production in terms o f the quantity o f labour required
to produce the total national product.3
Between February 1815 and the time, at the end o f that year,
when he began serious work on the Principles, Ricardo’s theory
o f value underwent a certain amount o f further development. Various
aspects o f the value problem began to present themselves with in­
creasing frequency in his correspondence with Malthus, and in August-
September there was an interesting exchange o f opinions with Say
on the question o f the relation between value and utility.4 In August
and September, too, he wrote his Proposals for an Economical and
Secure Currency, in which he gave rather more detailed consideration
to the value problem than he had done in his earlier monetary writings.
He incorporated the idea o f the dependence o f value upon “ difficulty
or facility o f production” ; he made a clear distinction between price
and value, specifically rejecting utility as a measure o f the latter; and
he emphasised the difficulties involved in detecting, when two com­
modities varied in relative value, in which o f the two the variation
had its origin.5
But the developments which occurred when Ricardo began work
on the Principles, under the schoolmasterly eye o f James Mill, were,
o f course, very much more important. At the end o f December he is
writing to Mill saying:

“ I know I shall be soon stopped by the word price, and then

I must apply to you for advice and assistance. Before my readers
can understand the proof I mean to offer, they must understand
the theory o f currency and o f price. They must know that the
prices o f commodities are affected two ways one by the alteration
in the relative value o f money, which affects all commodities
nearly at the same time,— the other by an alteration in the value
o f the particular commodity, and which affects the value o f no other
thing, excepting it entfer] into its composition.— This invariability
1 Works, I, p. 49, C f. II, pp. 61-2. 2 Jbiđ., V I, p. 108. See above, p. 91.
3 See SrafFa, in ibid., I, p. x x x ii. 4 Ibid., V I, pp. 245-9 and 270-3.
6 Ibid.t IV , pp. 59-62.
96 STUDIES I N THE L A B O U R T H E O R Y OF V A L U E

o f the value of the precious metals, but from particular causes

relating to themselves only, such as supply and demand, is the
sheet anchor on which all my propositions are built; for those
who maintain that an alteration in the value o f com will alter
the value o f all other things, independently o f its effects on the
value o f the raw material o f which they are made, do in fact deny
this doctrine o f the cause o f the variation in the value o f gold and
silver.” 1

Mill, however, does not seem to have given a great deal o f “ advice
and assistance” to Ricardo on questions o f theory such as this, his
role being mainly confined to that o f adviser on matters o f style
and arrangement2— and even on hours of w ork and the length o f
social visits.3 Having agreed with Ricardo that “ the problem to be
solved” was indeed “ to tell how the events in question operate upon
the relative proportions o f exchangeable commodities” ,4 Mill appears
to have left him more or less to his own devices. In April 1816 Ricardo
writes to Malthus that “ obstacles almost invincible oppose themselves
to my progress” ;5 and Malthus encouragingly replies that the reason
for this is that Ricardo has “ got a little into a wrong track” . “ On the
subject o f determining all prices by labour” , Malthus explains, “ and
excluding capital from the operation o f the great principle o f supply
and demand, I think you must have swerved a little from the right
course.” 6 Notwithstanding this fairly broad hint, Ricardo continued
working along the same lines, and it was not long before he came
face to face with “ the curious effect which the rise o f wages produces
on the prices o f those commodities which are chiefly obtained by the
aid of machinery and fixed capital” 7— a problem which for a time
“ very much impeded” his investigations into “ the question o f price
and value” .8 In November, however, Mill expressed himself as
satisfied with the results o f Ricardo's work on the “ general principle” .
Ricardo was at last equipped with one o f the basic tools necessary
to deal adequately with what he had come to regard as “ the most
difficult, and perhaps the most important topic o f Political Economy,
namely the progress o f a country in wealth and the laws by which
the increasing produce is distributed” .9

1 Works, V I, pp. 348-9. C f. v n , p. 3.

2 Sec SrafFa’s account in ibid.,I, pp. x ix -x x ii. 3 Ibid., V I, p. 340.
4 Ibid., VII, p. 7- 5 Ibid., VII, p. 28. 6Ibid., VII, p. 30.
7 Ibid., V II, p. 82. See b e lo w , pp. 103 ff. 8Ibid., VH, p. 7 1 .
9 Ibid., V II, p. 24.
 R IC A R D O A N D THE L A BO U R T H E O R Y 97

3. The Theory o f Value in the First Edition o f the “ Principles ”1

It is useful, I think, to consider the chapter on value in the first
edition o f Ricardo’s Principles from the point o f view o f the critique
o f Adam Smith o f which it largely in effect consists. Prior to the
publication o f the Principles Ricardo had never had occasion to ex­
press publicly his disagreement with any aspect o f Smith's theory
o f value— except to the extent to which such disagreement was im­
plicit in his opposition (in the Essay) to the idea that “ the price o f com
regulates the prices o f all other things” . But it seems probable that he
had come to appreciate the nature o f what he called Smith’s “ original
error respecting value” at a fairly early stage in his more mature
consideration o f the value problem. Certainly, at any rate, he was
able by the end o f 1816 to recognise the extent to which Smith’s
“ faulty” opinions on such subjects as bounties and the colonial trade
were founded on this “ original error” .2 And it is evident from the
structure o f the first chapter o f the Principles that the development
and refinement o f Ricardo’s theory o f value proceeded more or less
hand in hand with his critical analysis o f Smith’s account.
The first stage o f Ricardo’s critique is summed up in the section-
heading with which (in the second and third editions) the first chapter
o f the Principles begins:

“ The value o f a commodity, or the quantity o f any other

commodity for which it will exchange, depends on the relative
quantity o f labour which is necessary for its production, and
not on the greater or less compensation which is paid for that
labour.” 3

Ricardo commences his argument under this heading by quoting

Smith’s famous paragraph concerning the distinction between value in
use and value in exchange. “ Utility” , says Ricardo, . . . is not the
measure o f exchangeable value, although it is absolutely essential to it.” 4
1 T h e 1st edn. appeared in 1817, the 2nd in 1819 and the 3rd in 1821.
2 Works, V II, p. 100. C f. chapters X X II and X X V o f the Principles.
3 Ibid., I, p. 11. This section-heading is n ot found in edn. 1 (w hich does not divide the
first chapter into sections), but it accurately summarises the main content o f the first part
o f this chapter in edn. 1 (up to p. 17 in the Works).
4 Ibid., I, p. 11. It is interesting to note that R icard o ’s conclusion that utility is essential
to exchange value is based on a definition o f utility w h ich relates it to the capacity o f
a com m o d ity to contribute in some w a y to our “ gratification” . His rejection o f u tility
as “ the measure o f exchangeable value” , h ow ever, is based on Sm ith’s paragraph w h ich
im p lied ly relates utility to a scale o f “ norm al need” . C f. the fuller treatment in chapter
X X o f the Principles; and see above, pp. 72-3.
98 STUDIES I N THE L A B O U R T H E O R Y OF V A L U E

He then goes on to make it clear that the law o f value which he

is going to expound applies only to “ such commodities . . . as can
be increased in quantity by the exertion o f human industry, and
on the production o f which competition operates without restraint.” 1
All other commodities— those “ the value o f which is determined by
their scarcity alone” and which “ form a very small part of the mass
o f commodities daily exchanged on the market” 2— are relegated to
the position o f lesser breeds without the law. How, then, are the
values o f the relevant commodities determined?3 Ricardo quotes a
number of passages from the Wealth o f Nations which are claimed to
support the view that, at least in “ the early stages o f society” , it is
“ the quantity o f labour realized in commodities” which regulates
their exchangeable value.4 Abstracting for the moment from the
question o f whether this “ rule” does in fact operate (as Smith believed)
only in “ the early stages o f society” , Ricardo embarks immediately
upon his polemic against Smith’s “ commandable labour” measure.
“ Adam Smith” , says Ricardo,

“ who so accurately defined the original source o f exchangeable

value, and who was bound in consistency to maintain, that all things
became more or less valuable in proportion as more or less labour
was bestowed on their production, has himself erected another
standard measure o f value, and speaks o f things being more or less
valuable, in proportion as they will exchange for more or less o f
this standard measure. Sometimes he speaks o f com, at other times
o f labour, as a standard measure; not the quantity o f labour bestowed
on the production o f any object, but the quantity which it can
command in the market: as if these were two equivalent expressions,
and as if because a man’s labour had become doubly efficient,
and he could therefore produce twice the quantity o f a commodity,

1 Works, I, p. 12. 2Ibid.

8 T he reader should p erhap s be rem inded here that R icard o accepted the traditional
Classical idea that w h e n com m od ities w ere sold at their “ natural prices” (i.e., at their cost
o f production, inclu ding p r o fit at the norm al o r “ natural” rate) they w ere b ein g sold
“ at their values” . T h e “ n atu ral prices” at w hich freely reproducible com m odities tended
to sell under conditions o f com petition w ere conceived as the m onetary expression o f
their “ values” . A c c o r d in g to R icard o ’s (and M a rx ’s) view , it w as the prim ary function
o f a theory o f value to e x p la in w h at ultim ately determ ined or regulated these “ natural
prices” .
4 Works, I, pp. 12-13. I*1 a subsequent section R icardo makes it clear that “ not o n ly the
labour applied im m e d ia te ly to com m odities affect their value, but the labour also w h ich
is bestowed on the im p lem en ts, tools, and buildings, w ith w hich such labour is assisted” .
T h e past labour e m b o d ie d in these “ implements, tools, and buildings” (and also in the
ra w materials used) con trib utes to the total value o f the final product in so far as th ey
are used up in its p ro d u ctio n . See ibid., I, pp. 22-5.
 RICA R D O AND THE LABO U R TH EORY 99

he would necessarily receive twice the former quantity in exchange

for it.” 1
This statement is hardly fair to Smith, who never really spoke o f
embodied labour and commandable labour “ as if these were two
equivalent expressions” . But Ricardo’s main objection to the com­
mandable labour measure is not affected by this exaggeration. What
Ricardo really wanted to attack was Smith’s assumption that the
quantity o f commandable labour can be usefully regarded as an
“ invariable” measure o f value, when in fact labour is palpably “ subject
to as many fluctuations as the commodities compared with it” .2
Gold and silver and com, says Ricardo, are subject to fluctuations
from many different causes. And, he asks,
“ is not the value o f labour equally variable; being not only
affected, as all other things are, by the proportion between the
supply and demand, which uniformly varies with every change
in the condition o f the community, but also by the varying price
o f food and other necessaries, on which the wages o f labour are
expended?” 3
If, then, Smith was wrong in talking about labour “ never varying
in its own value” ,4 commandable labour could not be said to constitute
a reliable “ standard measure o f value” . The value o f a commodity
estimated in such a measure would have to be regarded as changing
with every change in the compensation paid to the labourer, even
though nothing at all had happened to the difficulty or facility o f
its production. This was a position, Ricardo’s argument implied,
which few people would really wish to adopt. And, what was
more, if a change did occur in the difficulty or facility o f its pro­
duction, the commandable labour measure would not fully
reflect it unless— which was very unlikely— the real wage o f the
labourer happened at the same time to change pari passu with his
productivity.
1 Works, I, pp. 13-14. T h e point that R icard o is m aking at the end o f this passage is sim ply
this— that in measuring changes in the value o f com m odities different results w ill be
obtained from the use o f the em bodied labour measure and the com m andable labour
measure unless the real w age rate (in terms o f the com m od ity w hose value is being meas­
ured) alw ays varies pari passu w ith productivity. A n d this, o f course, w o u ld happen
o nly rarely, since (as R icard o put it in a letter to M althus o f A ugu st 1816) “ it is v e ry
seldom that the w h o le additional produce obtained w ith the same quantity o f labour
falls to the lot o f the labourers w h o produce it” (Works, V II, p. S7). C f. Wealth o f Nations,
V o L I, pp. 66-7.
2 Works, I, p. 14. C f. above, p. 78. 3 Ibid., I, p. 15.
4 Wealth o f Nations, V oL I, p. 35.
100 S T U D I E S IN T H E L A B O U R T H E O R Y OF V A L U E

The second stage of Ricardo’s critique o f Smith is summed up in the

following passage:
“ Though Adam Smith fully recognized the principle, that the
proportion between the quantities o f labour necessary for acquiring
different objects, is the only circumstance which can afford any rule
for our exchanging them for one another, yet he limits its applica­
tion to ‘that early and rude state o f society, which precedes both
the accumulation o f stock and the appropriation o f land*; as if,
when profits and rent were to be paid, they would have some
influence on the relative value o f commodities, independent o f the
mere quantity o f labour that was necessary to their production.” 1

It was certainly true, as we have seen, that Smith often spoke as

i f the value o f a commodity in modem times, as distinct from its
value in the “ early and rude state o f society” , were determined by
adding up the wages, profit and rent into which the natural price
seemed to him ultimately to resolve itself W e now know that this
was the source o f Ricardo’s main objection to Smith’s theory o f
value. “ Adam Smith thought” , wrote Ricardo to Mill in Dec­
ember 1818,
“ that as in the early stages o f society, all the produce o f labour
belonged to the labourer, and as after stock was accumulated, a
part went to profits, that accumulation, necessarily, without any
regard to the different degrees o f durability o f capital, or any
other circumstance whatever, raised the prices or exchangeable
value o f commodities, and consequendy that their value was
no longer regulated by the quantity o f labour necessary to their
production.” 2
Ricardo, who was seeking for a theory o f value which would be
capable o f application to the problem o f the progressive redistribution
o f the national ptoduct as capital accumulation increased, could hardly
have been expected to look with favour on a theory which, apart from
anything else, appeared to suggest that the value o f the national
product might change appreciably merely as the result o f a change in its
distribution.3 The manner in which the proceeds from the sale o f a
commodity were divided up from time to time between the main
social classes, Ricardo believed, made no difference to the value o f the
commodity, which, in modem as well as in ancient times, varied
1 Works, I, 22-3, fo o tn o te . O n this passage, and in particular on the question o f the
reasons fo r its om ission in edn. 3, see Srafia’s account in Works, I, pp. x x x v -x x x ix .
2 Ibid., V II, p. 377. 8 Sec b elow , p. 112.
 R IC A R D O A N D THE L A B O U R T H E O R Y 101
only when there was a change in the quantity o f labour required to
produce it 1
The development o f Ricardo’s thought along these lines dictated
to a large extent the form which the earlier chapters o f the Principles
were to assume. Since Smith had suggested that the payment o f profit
and rent prevented the “ rule” which regulated value in ancient times
from regulating it also in modem times, it was necessary for Ricardo
to show clearly that profit and rent did not in fact have this effect.
Adam Smith, said Ricardo,
“ has no where analyzed the effects o f the accumulation o f capital,
and the appropriation o f land, on relative value. It is o f importance,
therefore, to determine how far the effects which are avowedly
produced on the exchangeable value o f commodities, by the com­
parative quantity o f labour bestowed on their production, are
modified or altered by the accumulation o f capital and the pay­
ment o f rent.” 2
Ricardo, therefore, accepting the determination o f value by labour
time as his foundation, proceeded systematically to enquire to what
extent this foundation was consistent with the payment o f profit
to the owners o f capital and the payment o f rent to the owners o f land.8
In the first draft o f the Principles, which Ricardo sent to Mill in October
1816, the logical pattern o f the argument as a whole must have been
rather more obvious than it was in the version finally published, since
Mill commented as follows on Ricardo’s treatment:
“ Your explanation o f the general principle that quantity o f labour
is the cause and measure o f exchangeable value, excepting in the
cases which you except, is both satisfactory, and clear.
“ Your exposition and argumentation to shew, in opposition to
A. Smith, that profits o f stock do not disturb that law, are luminous.
So are the exposition and argumentation to shew that rent also
operates no such disturbance.” 4
1 Subject, o f course, to the “ m odifications” w h ich he later introduced and w h ich w ill
be discussed b elo w .
2 Works, I, p. 23, footnote.
3 C f. M arx, Theories o f Surplus Value (English edn.), p. 203. T h e essence o f R icard o’ s
argum ent on the question o f the paym ent o f profit is contained in the passage quoted
on p. 102 b elo w .
*W orks, VII, p. 98. T h e “ exceptions” referred to in the first paragraph are, presumably,
those com m odities (such as “ rare statues and pictures, scarce books and coins” , etc.),
the value o f w h ich , according to R icard o, is “ determ ined b y their scarcity alone” . (See
Works, I, p. 12.) M ill goes on to rem ark that “ to this extent the disquisition is rem arkably
free o f that sin w h ich m ost easily besets y o u , o f crow d in g too m any points into one place;
and sum m oning all the parts o f the science at once to p rove a particular point. T h e argu­
m ent thus far is not o n ly convincing, but clear, and easily understood.”
102 S T U D I E S IN TH E L A B O U R T H E O R Y OP V A L U I

Unfortunately, this simple pattern was destined to be bluired by the

insertion, between the arguments relating to profit and to rent, o f
certain material which in the first draft probably appeared in a later
section.1 The third stage o f Ricardo’s critique o f Smith, about which
something must now be said, was reflected in this material.
Smith, as 1 have already noted above, had argued that a rise in the
price o f com, by way o f its effect on wages, would bring about a
rise in the prices o f all other commodities. Ricardo had opposed this
idea in his Essay on Profits, but as his theory o f value developed he was
able to give his opposition a rather more scientific basis than that which
he had given it in the Essay. His own idea that a change in the price
o f com, while it would indeed alter wages, would not thereby affect
the price of any other commodity, was, in fact, as he soon came to
realise, a logical corollary o f the doctrine that the payment o f profits
does not disturb the operation o f embodied labour as the determinant
o f value. When profits came to be paid, the produce o f labour was
divided up between the class which owned the means o f production
and the class which furnished the labour, but this did not mean that
the determinant o f value which used formerly to operate in the
primitive community o f the deer and beaver hunters now automati­
cally ceased to operate:

“ All the implements necessary to kill the beaver and deer might
belong to one class o f men, and the labour employed in their
destruction might be furnished by another class; still, their com­
parative prices would be in proportion to the actual labour bestowed,
both on the formation o f die capital, and on the destruction o f the
animals. Under different circumstances . . . those who furnished
an equal value o f capital for either one employment or for the other,
might have a half, a fourth, or an eighth o f the produce obtained,
the remainder being paid as wages to those who furnished the
labour; yet this division could not affect the relative value o f these
commodities, since whether the profits o f capital were greater or
less, whether they were 50, 20, or 10 per cent, or whether the
wages o f labour were high or low, they would operate equally
on both employments.” 2

According to this analysis, then, it appeared that a change in the

proportions in which the produce was divided up between profits
1 C f. Sraffa, in Worksf I, pp. x v i-x v iii, and particularly p. x v ii, footnote 2.
2 Ibid., If p. 24. C f. pp. 26-9.
 R IC A R D O A N D THE L A B O U R T H E O R Y 103

and wages would not affect the relative values o f commodities

(including the monetary commodity). Thus a change in the price
o f com, while it would almost certainly bring about a change
in wages, would not thereby affect the prices o f any other com­
modity.1
But Ricardo soon found that he was wrong in saying that a change
in wages (and therefore in profits) would necessarily and in all cases
“ operate equally on both employments” . In a case where the capitals
required to produce two commodities were differently constituted
— for example, where one o f the commodities was produced with a
relatively large amount o f fixed and a relatively small amount o f
circulating capital, while the other was produced with a relatively
small amount o f fixed and a relatively large amount o f circulating
capital— it was possible to show that a rise in wages which brought
about a reduction in the rate o f profit (or vice versa) would in fact
affect the relative values o f the commodities.2 This did not mean,
however, according to Ricardo, that Smith was correct in saying
that a rise in wages would bring about a rise in the prices o f com­
modities in general. In actual fact, he argued, a rise in wages would
cause no commodities whatever to rise in price, but would on the
contrary cause an absolute fall in the prices of all commodities in the
production o f which any fixed capital at all was employed, this fall
being greater as the proportion o f fixed to circulating capital was
greater.8
The gist o f Ricardo’s argument can be illustrated by a simple
arithmetical example. Suppose that we have three commodities,
A, B and C, in the production o f each o f which a total capital o f 100
is employed. In the case of A, this 100 consists entirely o f circulating
capital; in the case o f B it is divided equally between fixed and circu­
lating; and in the case o f C 80 is fixed and 20 circulating. W e assume
that all the fixed capital is used up in the particular period of produc­
tion we are considering; that the circulating capital consists entirely
o f wages; and that the average rate of profit on capital is 20 per cent.
The equilibrium price o f the output o f each of the three commodities—

1 E xcept in so far as “ ra w material from the land” entered into its com position. Sec
Works, I, p. 117, and cf. IV , p . 20, footnote.
2 R icard o also show ed that a similar effect w o u ld be produced i f the fixed capitals
w ere o f different “ durabilities” . In edn. 2, as a result o f a criticism b y Torrens, he added
the further case o f a difference in the “ durabilities” o f the circulating capitals (see Works,
I, pp. xiii and 60-1, footnote).
8 See Works, I, pp. 62-3.
 104 STU D IES IN THE L A B O U R T H E O R Y OF VALUE

equal to its cost o f production, including profits at the average rate—

Capital Projit Equilibrium

Fixed Circulating (2° % ) Price
A. .. 0 100 20 120
B. .. 50 50 20 120
C. .. 80 20 20 120

Suppose now that wages increase by 10 per cent., and that there is a
consequential fall in the rate o f profit from 20 per cent, to 9^ per cent.1
The situation will then be as follows:

Capital Projit Equilibrium

Fixed Circulating (9A % ) Price
A. .. 0 110 10 120
B. .. 50 55 9*5 114*5
C. .. 80 22 9*3 h i .3

It will be seen that none o f the three commodities has risen in price;
that each o f the two commodities in the production o f which fixed
capital has been employed (B and C) has fallen in price; and that this
fall is greater in the case o f commodity C, where the proportion o f
fixed to circulating capital is greater.
The main moral which Ricardo drew from this analysis, in the
first edition o f the Principles, was that Adam Smith and the other

1 T he figure o f 9 ^ per cent, has been selected so as to m ake the new equilibrium price
o f com m odity A , in the production o f w h ich no fixed capital is em ployed, exactly the
same as the old. This is in effect w hat R icard o does in his o w n rather m ore ponderous
examples (see, e.g., I, p. 59). T h e procedure is not quite so arbitrary as it m ay appear at
first sight. For R icard o, in edns. 1 and 2 o f the Principles, proceeded b y “ supposing
m oney . . . to b e alw ays the produce o f the same quantity o f unassisted labour**— w ith
the additional tacit assumption, as M r. Sraffa puts it, that the period taken to produce
and bring to m arket the m onetary com m od ity (and all other commodities) was a year
(I, p. xlii). O n this assumption, the prices o f that class o f com m odities “ w here the advances
consist solely in the paym ent o f labour, and the returns com e in exactly in the year**
w ould not in fact change w ith a rise in w ages; capital in the case o f this class o f com m odi­
ties w o u ld necessarily lose precisely w h at labour gained; and the fall in the rate o f profit
in this branch o f production w o u ld determine the fall in the general rate o f profit. T h e
main conclusion w h ich R icardo draws from his examples— that a rise in w ages w ill
cause a fall in the prices o f all com m odities in the production o f w h ich any fixed capital
is em ployed— is obviou sly dependent upon this assumption. B u t the proposition that a
rise in wages w ill cause the prices o f com m odities produced w ith a high proportion o f
fixed to circulating capital to fall relatively to the prices o f those produced w ith a lo w
proportion remains true w hatever assumption is m ade about the conditions o f production
o f the m onetary com m odity.
 RICARDO AND THE L A B O U R T H E O R Y 105
“ writers of distinguished and deserved reputation” 1 who had main­
tained that a rise in wages must necessarily be followed by a rise in
the prices o f all commodities were quite mistaken. So far from the
prices o f all commodities rising as a result o f a rise in wages, none
would in fact rise and the great majority would actually fall. The
paradoxical character o f this conclusion seems to have appealed to
Ricardo, and in the first edition o f the Principles he went out o f his
way to emphasise it. It was o f course true that in order to reach this
conclusion it had to be conceded that a change in wages might cause
commodities to vary in relative value even though nothing at all
had happened to the quantities o f labour required to produce them.
The relative values o f commodities produced with the aid o f differ­
ently constituted capitals, it now appeared, might vary not only when
the productivity of labour varied but also when the wages of labour
varied. Thus the accumulation of capital did after all seem to disturb
the law o f value. But the point which was important for Ricardo
was that it did not disturb it in the way that Adam Smith had postulated.
The mere fact o f the division o f the product between wages and profit,
consequent upon accumulation, did not affect it. In opposition to
Smith, Ricardo maintained that “ it is not because o f this division
into profits and wages,— it is not because capital accumulates, that
exchangeable value varies, but it is in all stages o f society, owing
only to 2 causes: one the more or less quantity o f labour required,
the other the greater or less durability o f capital:— that the former is
never superseded by the latter, but is only modified by it.” 2 Thus
accumulation, in so far as it occasioned “ different proportions o f fixed
and circulating capital to be employed in different trades” and gave
“ different degrees o f durability to such fixed capital” , certainly
introduced “ a considerable modification to the rule, which is o f
universal application in the early stages o f society” .3 But it introduced
no more than a modification to that rule. Adam Smith’s view that the
labour theory applied only to primitive times, and that it had to be
replaced by some sort o f “ cost o f production” theory when capital
accumulated, was decisively rejected.

Prior to the publication o f Mr. Sraffa’s edition of the Works and

Correspondence, it was widely believed that Ricardo eventually came
1 Works, I, p. 63. 2 Ibid., VII, p. 377.
8 Ibid., I, p. 66. C f. M arx’s treatment o f this problem in Capital, V oL IH, chapter ix .
IO6 S T U D I E S IN THE LABOUR T H E O R Y OF VALUE
to realise that the labour theory o f value was too shaky and unreliable
for the imposing structure of distribution
theory which he had erected upon it. His famous letter to McCulloch
o f 13 June 1820, in which he expressed some dissatisfaction with the
theory,1 was almost invariably given prominence in histories o f
economic thought; and certain of the changes made in the second
and third editions o f the Principles were frequently adduced as evidence
o f a gradual “ retreat” from the theory presented in the first edition.
Mr. Sraffa, however, in his introduction to the Principles, comes
to the conclusion that “ an examination o f the changes in the text
in the light o f the new evidence lends no support” to “ the view o f a
retreat in Ricardo’s position over successive editions” . “ The theory o f
edition 3” , he writes, “ appears to be the same, in essence and in em­
phasis, as that o f edition 1.” 2 It is difficult not to be persuaded by the
impressive evidence which Mr. Sraffa brings forward.8 There seems
to be no doubt that, apart from the one lapse in his letter to McCulloch,
Ricardo persisted to the end in his belief that “ in fixing on the quantity
o f labour realised in commodities as the rule which governs their
relative value we are in the right course” .4 Economists may still argue,
if they wish, that Ricardo was misled into false enquiries on the
question o f value. But what has always been one of the chief props
o f this argument— the notion that Ricardo himself eventually
recognised that he had been misled— has been irretrievably knocked
away.
The main alterations to the chapter on value in the third edition
were connected with Ricardo’s increasing preoccupation with the
problem o f defining an “ invariable” measure o f value. This was a
problem to which Ricardo had already given some attention— although
not a great deal— in the first and second editions. “ If any one commo­
dity could be found” , he had there said,
1 Works, v m , pp. 191-7* Sec particularly p. 194. 2 Ibid., I, p. xxxviii.
3 In only one place does Mr. SrafFa’s argument seem unconvincing. A statement in
edns. 1 and 2 to the effect that “in the early stages of society” the exchangeable value of
freely reproducible commodities “depends solely” upon the quantity of embodied labour
was amended in edn. 3 by the replacement of “depends solely” with “depends almost
exclusively”. Mr. SrafFa’s explanation, which relates the amendment to the change in the
choice of standard from edn. 1 to edn. 3, seems to me to be a shade too ingenious. Should
not the amendment rather be related to Ricardo’s recognition in 1820 (under the stimulus
of a criticism by Malthus in the latter’s Principles) that the cause which brings about the
“ considerable modification” to the law of value actually “operates in every stage of
society”— i.e., not only in capitalist society, but also in those “early stages of society”
to which Ricardo’s statement specifically refers? See Works, I, pp. xxxix and 12, and II,
p. 59.
4 Works, Vm, p. 344*
 R I C A R D O AND THE L AB OUR TH E O RY 107

“ which now and at all times required precisely the same quantity
o f labour to produce it, that commodity would be o f an unvarying
value, and would be eminently useful as a standard by which the
variations o f other things might be measured. O f such a commodity
we have no knowledge, and consequently are unable to fix on any
standard o f value.” 1
If a commodity possessing this quality could in fact be found, Ricardo
had said, we should be able to use it to ascertain, when two commodi­
ties which were produced with similarly constituted capitals varied in
relative value, how much o f the variation was to be attributed to a
cause which affected the value o f one and how much to a cause which
affected the value o f the other.2 In the case o f these commodities,
we should find that “ the utmost limit to which they could permanently
rise” , when measured in terms o f the “ invariable” standard, Would be
“ proportioned to the additional quantity o f labour required for their
production; and that unless more labour were required for their pro­
duction, they could not rise in any degree whatever” .3 But if the
commodities were produced with capitals o f different “ proportions”
and “ durabilities” , this would no longer be the case, and “ the relative
value o f the commodities produced, would be altered in consequence
o f a rise in wages” ,4 even though this were unaccompanied by any
change in the difficulty or facility o f production. That was really as
far as Ricardo specifically pursued the matter in the first and second
editions o f the Principles .
Malthus, in his own Principles (1820), criticised Ricardo for maintain­
ing that a rise in wages would lower the prices o f the great majority
o f commodities. It was true, Malthus agreed, that in cases where
commodities were produced with a large quantity o f fixed capital
and where a long time elapsed before the returns came in, it was
natural to suppose
“ that the fall o f price arising from a fall o f profits should, in various
degrees, more than counterbalance the rise o f price which would
naturally be occasioned by a rise in the price o f labour; and conse­
quently on the supposition o f a rise in the money price o f labour
and a fall in the rate o f profits, all these commodities will, in various

1 Works, I, p. 17, footnote. 2 Ibid., I, pp. 27-8 and 54.

3 Ibid., I, pp. 29-30 and 56.
*Ibid ., I, p. 56. The paragraph from which this statement is quoted does not appear
in edn. 2, but a paragraph of similar import is substituted for it.
6 Ibid., II, p. 62.
108 S T U D I E S I N T H E L A B O U R T H E O R Y OF V A L U E

But in the case o f that other “ large class o f commodities” where

there was little or no fixed capital employed and the returns came in
rapidly, it was by no means natural to suppose this, since the tendency
for the price to fall would not “ more than counterbalance” the
tendency for it to rise. The prices o f this class o f commodities, there­
fore, would in fact rise with a rise in wages. On the borderline between
these two classes there would be a third class, where “ a rise or fall o f
wages is exactly compensated by a fall or rise o f profits”— a line
which Ricardo had placed, “ at a venture, among those commodities
where the advances consist solely in the payment o f labour, and the
returns come in exactly in the year” .1 This third class, Malthus added,
wherever the line be placed, “ can embrace but a very small class o f
objects” , and “ upon a rise in the price o f labour, all the rest will
either fall or rise in price, although exactly the same quantity o f
labour continues to be employed upon them.” 2
Ricardo was not impressed by the sting in the tail o f Malthus’s
analysis. “ Mr. Malthus” , he said,

“ shews that in fact the exchangeable value of commodities is not

exadly proportioned to the labour which has been employed on
them, which I not only admit now, but have never denied.” 8

But he was quite prepared to agree that Malthus was correct in saying
that with a rise in wages some commodities would in fact rise in price.
“ I inadvertently admitted” , he confessed, “ to consider the converse
o f my first proposition.” 4 And the idea that a class o f commodities
produced under certain conditions could be conceived as constituting
a sort o f borderline between commodities which would fall and com­
modities which would rise in price with a change in wages excited
his interest. It was not long before he saw more clearly its relevance
to the problem o f the “ invariable” measure of value. Soon after
reading Malthus’s book it became apparent to Ricardo that his present­
ation o f this problem in the first and second editions had been to some
extent deficient, in that he had failed to take full and specific account
o f the “ variety o f circumstances” under which the “ invariable”
might be supposed to be produced. “ I have not
been sufficiently explicit” , he wrote to McCulloch, in a letter dis­
cussing Malthus *s critique,
1 Works, II, pp. 62-5. C£ above, p. 104, footnote. 2 Works, II, p. 65.
66
3 Ibid., II, p. . 4 Ibid., II, p. 64.
 RICARDO AN D THE LAB O U R TH E O R Y 109
“ for I ought to have said that if the medium is produced under
certain circumstances, there are many commodities which may
rise in consequence o f a rise in labour, altho’ there are many others
which would fall, while a numerous portion would vary very
little.” 1
From here it is only a short step to the idea that the degree o f imperfec­
tion o f an “ invariable” measure o f value can be reduced if we postulate
not only that it should always require the same quantity o f labour to
produce it but also that it should be produced under circumstances
which represent a sort o f mean between the two extremes o f high
and low “ proportions” and “ durabilities” o f capital.2
Most o f the major alterations in the third edition o f the Principles
are the result o f Ricardo’s development o f this idea. In the first place,
there is a restatement o f the doctrine relating to the effect upon relative
prices o f a change in wages:
“ It appears, too, that in proportion to the durability o f capital
employed in any kind o f production, the relative prices o f those
commodities on which such durable capital is employed, will vary
inversely as wages; they will fall as wages rise, and rise as wages
fall; and, on the contrary, those which are produced chiefly by labour
with less fixed capital, or with fixed capital o f a less durable character
than the medium in which price is estimated, will rise as wages
rise, and fall as wages fall.” 8
In spite o f this amendment, o f course, it still remained true that those
who maintained that “ a rise in the price o f labour would be uniformly
followed by a rise in the price o f all commodities” were wrong,
since in fact only some commodities would rise;4 and it also remained
true— a point which Ricardo seemed especially concerned to emphasise
in the third edition— that “ this cause o f the variation o f commodities
is comparatively slight in its effects” when seen in relation to “ the
other great cause” , namely, “ the increase or diminution in the quantity
o f labour necessary to produce them” .5
In the second place, in the new section headed “ On an invariable
measure o f value” , Ricardo makes an attempt to define the proper
mean between the two extremes o f high and low “ proportions”
and “ durabilities” o f capital. No measure can possibly be perfect,
1 Works, Vm» p. x8o. Ricardo insisted, however, that “this is all implied in my book” .
2 Ibid., Vm, pp. 191-3. Cf. pp. 343 - 4 -
8 Ibid., I, p. 43. There are a number of minor consequential amendments which it is
not necessary to specify.
4 Ibid., I, p. 46. 6 Ibid., I, p. 36.
110 STU D IES IN THE L A B O U R T H E O R Y OF V A L U E

he argues, for even if we could find one which always required the

relative variations from a rise or fall o f wages, on account o f the

different proportions o f fixed capital which might be necessary to
produce it, and to produce those other commodities whose alteration
o f value we wished to ascertain” .1 And, o f course, differences in the
durabilities, as well as the proportions, o f capital might similarly
affect the reliability o f the measure. Thus a commodity always re­
quiring the same quantity o f labour to produce it “ would be a perfect
measure o f value for all things produced under the same circumstances
precisely as itself, but for no others” .2 The best we can do, therefore,
is to strike some sort o f mean between the two extremes. Ricardo
selects gold as his measure, suggesting that it may be considered as a
commodity “ produced with such proportions o f the two kinds o f
capital as approach nearest to the average quantity employed in the
production o f most commodities” . “ May not these proportions” , he
asks, “ be so nearly equally distant from the two extremes, the one
where little fixed capital is used, the other where little labour is
employed, as to form ajust mean between them?” 3 Some o f the further
implications o f this analysis, and its development in Ricardo’s thought
after the publication o f the third edition o f the Principles, will be
considered in the next section.

5. The Final Stage : The Development o f the Concept o f Absolute

Value
The discovery o f the papers on Absolute Value and Exchangeable
Value, upon which Ricardo was working during the last weeks o f his
life, has given a new interest and importance to the question o f the
development o f his ideas on value after the appearance o f the third
edition o f the Principles. In particular, it has become possible to detect
the emergence of a new trend in his thought— a trend which developed
out o f his increasing concern with the problem o f the relationship
between “ relative” (or “ exchangeable”) value and “ absolute” value.
“ The inquiry to which I wish to draw the reader’s attention” ,
said Ricardo in the Principles, “ relates to the effect o f the variations
in the relative value o f commodities, and not in their absolute value.” 4
1 Works, I, p. 44. 2 Ibid., I, pp. 44-5. 8 Ibid., I, pp. 45^.
4 Ibid., I, p. 21. Cf. VIII, p. 279: “The doctrine is less liable to objections when employed
not to measure the whole absolute value of the commodities compared, but the variations
which from time to time take place in relative value.”
 R I C A R D O AND THE LABOUR T H E O R Y III
The formal rationale o f the concept o f absolute value, as we have seen,
lies in the assumption that a change in the relative values o f two com-
modities can be usefully regarded as the net resultant of a change
which has taken place in the “ absolute* ’ (or ‘ heal*’) value of one or
both o f them considered individually. The “ absolute** value o f a com­
modity, in the broad sense, is in fact its value as measured by an
“ invariable** standard.
The difficulties inherent in the problem o f measuring absolute
value begin to become evident only when we recognise that com­
modities (including the commodity used as a standard) are actually
subject to fluctuations in relative value, not only from a change in
the quantity o f labour required to produce them, but also from “ a
rise o f wages, and consequent fall of profits, if the fixed capitals
employed be either o f unequal value, or o f unequal duration’*.1
Under these circumstances, how can the absolute value o f a commodity
be measured? Or, to put the same question in another way, what
qualities must a measure possess in order to be “ perfect” or “ in­
variable” ? I have already noted the solution to this problem which
Ricardo propounded in the third edition o f the Principles. In his
final paper, following up a suggestion he had made to McCulloch
to the effect that all the exceptions to the general rule that the value
o f a commodity depended upon embodied labour could be conceived
o f in terms o f differences in the time taken to produce the commodity
and to bring it to market,2 Ricardo decided that the “just mean”
was represented by “ a commodity produced by labour employed for a
year” .3 This, he asserted, was “ a mean between the extremes o f com­
modities produced on one side by labour and advances for much more
a year, and on the other by labour employed for a day only without
any advances” . The fact that this measure was “ produced in the same
length o f time as com and most other vegetable food which forms by
far the most valuable article o f daily consumption” , said Ricardo,
would decide him “ in giving it a preference” .4
According to Ricardo’s way o f looking at the problem, as we have
seen, a measure o f absolute value was only perfect— i.e., perfectly
invariable— if it always required the same quantity o f labour to produce
it and if the constitution and durability o f the capital required to
produce it were the same as that o f the capital required to produce

1 Works, I, p. 53. 2 Ibid., VIII, pp. 180 and 191-3.

3 Ibid., IV, p. 405. See Srafia’s account in I, pp. xliv-xlv.
4 Ibid., IV, pp. 405-6.
112 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

the commodity being measured. The measure which Ricardo finally

arrived at was selected precisely because it appeared to deviate from
this standard o f perfection less than any other possible measure. Now,
if the measure were perfect in this sense, it is evident that no com­
modity estimated in it could possibly vary in value unless there were
a change in the quantity o f labour required to produce it. The measure
would not refleđ the effect o f a change in wages at a ll This concept o f
a perfect measure o f absolute value which would act as a sort o f
sieve, allowing through the mesh the effects produced by a change
in wages and retaining only those produced by a change in the
quantity o f embodied labour, appealed strongly to Ricardo, and
remained the pivot of his thought on the value problem until the
end o f his life.
W hy should Ricardo have selected and so stubbornly defended
this particular criterion of the perfection o f a measure o f absolute
value? One reason which weighed with him, perhaps, was the con­
venience (in relation to the central problem o f distribution) o f a measure
which did not reflect the effect o f changes in wages, since, as Mr.
Sraffa says, “ if a rise or fall of wages by itself brought about a change
in the magnitude o f the social product, it would be hard to determine
accurately the effect on profits” .1 But rather more important than this,
I think, was the fact that at the back o f Ricardo’s mind there always
lurked the idea that there was something unique and fundamental
about the role which human labour played in the process o f value-
creation— so unique and fundamental, indeed, that it simply made
no sense to speak of a commodity as “ varying in absolute value” i f
no more or no less labour was required to produce it. In his final paper
on value this idea was given classic expression. “ To me it appears a
contradiction” , Ricardo wrote, “ to say a thing has increased in natural
value while it continues to be produced under precisely the same
circumstances as before.” 2
It is Ricardo’s increasing tendency to identify the absolute value
o f a commodity with the quantity o f labour embodied in it which
represents that new trend in his thought o f which I spoke at the
beginning o f this section. Even in the new material incorporated in
the third edition o f the P r in c ip le s there are signs n f this trendy p arti-
cularly in the chapter on Value and Riches. Take, for example, the
following passage:
1 Works., I, p. xlviii. Cf. above, p. 100.
2 Ibid., IV, p. 375. “Natural” is obviously used here as a synonym for “absolute” .
 R IC A R D O A N D THE L A B O U R T H E O R Y 113

“ A franc is not a measure o f value for any thing, but for a quantity

thing to be measured, can be referred to some other measure which

is common to both. This, I think, they can be, for they are both
the result o f labour; and, therefore, labour is a common measure,
by which their real as well as their relative value may be estimated.
This also, I am happy to say, appears to be M. Destutt de Tracy’s
opinion. He says, ‘as it is certain that our physical and moral faculties
are alone our original riches, the employment o f those faculties,
labour o f some kind, is our only original treasure, and that it is
always from this employment, that all those things are created
which we call riches, those which are the most necessary, as well
as those which are the most purely agreeable. It is certain too,
that all those things only represent the labour which has created
them, and if they have a value, or even two distinct values, they
can only derive them from that labour from which they emanate.* ” *
A month or two after the appearance o f the third edition, we find
Ricardo explaining to Trower:

“ I do not, I think, say that the labour expended on a commodity

is a measure o f its exchangeable value, but o f its positive value.
I then add that exchangeable value is regulated by positive value,
and therefore is regulated by the quantity o f labour expended.
“ You say if there were no exchange o f commodities they could
have no value, and I agree with you, if you mean exchangeable
value, but if I am obliged to devote one month’s labour to make
me a coat, and only one weeks labour to make a hat, although
I should never exchange either o f them, the coat would be four
times the value o f the hat; and if a robber were to break into m y
house and take part o f my property, I would rather that he took
three hats than one coat.” 2
In his next letter to Trower he writes similarly:

“ In speaking o f exchangeable value you have not any idea o f real

value in your mind— I invariably have. . . . The fault lies not in the
doctrine itself, but in my faulty manner o f explaining it. The
exchangeable value o f a commodity cannot alter, I say, unless
either its real value, or the real value o f the things it is exchanged
for alter. This cannot be disputed. If a coat would purchase 4 hats
and will afterwards purchase 5, I admit that both the coat and the
hats have varied in exchangeable value, but they have done so in
consequence o f one or other o f them varying in real value.” 3
1 Works, I, pp. 284-5. 2 Ibid., IX, p. 2. 8 Ibid., IX, p. 38.
114 S T U D I E S I N TH E L A B O U R T H E O R Y OF V A L U E

And another interesting formulation o f the same idea appears in a

1‘Nothing is to me so little important as the fall and rise o f com­

modities in money, the great enquiries on which to fix our attention
are the rise or fall o f com, labour, and commodities in real value,
that is to say the increase or diminution o f the quantity o f labour
necessary to raise com, and to manufacture commodities. It may be
curious to develop the effect o f an alteration o f real value on money
price, but mankind are only really interested in making labour
productive, in the enjoyment o f abundance, and in a good distri­
bution o f the produce obtained by capital and industry. I cannot
help thinking that in your speculations you suppose these much
too closely connected with money price.*1
Here are two further passages in which the quantity o f labour
worked up in a commodity is virtually identified with its absolute
value. The first is from the pamphlet On Proteđion to Agriculture,
which appeared in April 1822, and the second from a letter to Malthus
o f August 1823:
“ When I use the term— a low value o f com, I wish to be clearly
understood. I consider the value o f com to be low, when a large
quantity is the result o f a moderate quantity o f labour. In proportion,
as for a given quantity o f labour a smaller quantity o f com is ob­
tained, com will rise in value.” 2
“ I estimate value by the quantity of labour worked up in a com­
modity. . . . The difference between us is this, you say a commodity
is dear because it will command a great quantity o f labour, I say
it is only dear when a great quantity has been bestowed on its
production.” 3
And Ricardo’s increasing concern with this aspect o f the problem
was accompanied by a growing sharpness in his opposition to the
views of those who put forward different theories o f value— notably
Say with his utility theory, and Malthus with his commandable labour
measure and his superficial “ supply and demand” approach— and also
by a growing impatience with the highly scholastic attempts
o f his own disciples to explain away the difficulties associated with

able Value all these different strands o f thought are gathered together.
The idea I have been describing underlies a great deal o f the argument
1 Works, IX, p. 83. Cf. p. 100: “Too much importance is attached to money— facility
of production is the great and interesting point.”
2 Ibid., IV, p. 235. 8 Ibid., IX, p. 348. 4 Ibid., IX, passim.
 R IC A R D O A N D THE L A B O U R T H E O R Y 115

o f these final papers. It underlies, for example, the following criticism

“ In Mr. Malthus’s measure provided the labourer were always

paid the same quantity o f com for his labour the value would always
be the same although to obtain this same quantity double the
expenditure o f labour and capital might be necessary at one time
to what was necessary at another. If by improvements in husbandry
com could be produced with half the expenditure o f labour and
capital it would by Mr. M be said to be unaltered in value provided
the same quantity and no more was given to the labourer as wages.
It is indeed acknowledged by Mr. Malthus, (and how could it be
denied?) that under such circumstances com would fall very con­
siderably in money price— it would fall also in the same degree
in exchangeable value with all other things, but still Mr. M says
it would not fall in absolute value, because it did not vary in his
measure o f value. On the contrary all these things as well as money
would under the circumstances supposed vary in this measure
and therefore he would say they had all risen considerably in value.
He would say so altho* with respect to any one or more o f them
great improvements may have been made in the means o f pro­
ducing them by the application o f machinery, or from any other
cause which should render it cheap in price and lower in exchange­
able value with regard to all things com and labour excepted.
In Mr. Ricardo’s measure every thing to which such improvements
were applied would fall in value[,] and price and value would be
synonymous while gold the standard o f money cost the same
expenditure o f capital and labour to produce it.” 1
It underlies, too, Ricardo’s main criticism o f Torrens’s idea that in
modem times value is determined by the quantity o f capital required
to produce commodities rather than by the quantity o f labour:
“ A yard o f cloth may be worth 5 loaves o f sugar. The difficulty
o f producing cloth and sugar may be increased two fold, or it may
be doubly easy to produce them both, in neither o f these cases
will the relative value o f these two commodities alter, a yard o f
cloth will be still worth 5 loaves of sugar, and because their relative
value has not altered Col. Torrens would lead you to infer that their
real value has not altered— I say their real value has certainly altered,
in one case they have both, the yard o f cloth and the 5 loaves
o f sugar, become less valuable, in the other they have both become
more valuable.” 2
1 Works, IV, pp. 372-3; and cf. pp. 407-8, Cf. also I, pp. is-16,
2 Ibid., IV, p. 394. Cf. pp. 374-5.
I l6 S T U D I E S I N T H E L A B O U R T H E O R /Y O F V A L U E

And in one place the idea is stated specifically, with greater clarity

“ I may be asked what I mean by the word value, and by what

criterion I would judge whether a commodity had or had not
changed its value. I answer, I know no other criterion o f a thing
being dear or cheap but by the sacrifices o f labour made to obtain it.
Every thing is originally purchased by labour— nothing that has
value can be produced without it, and therefore if a commodity
such as cloth required the labour o f ten men for a year to produce
it at one time, and only requires the labour o f five for the same time
to produce it at another it will be twice as cheap. Or if the labour
o f ten men should be still required to produce the same quantity
o f cloth but for 6 months instead o f twelve cloth would fall in
value.
“ That the greater or less quantity o f labour worked up in com-
modifies can be the only cause o f their alteration in value is com­
pletely made out as soon as we are agreed that all commodities
are the produce o f labour and would have no value but for the
labour expended upon them.” 1

6. The Place o f Ricardo in the History o f the Labour Theory

Ricardo, as we have seen, began his researches into the value problem
on the basis o f the familiar Classical idea that when a commodity
was sold at its cost o f production (including profit on capital at the
average rate) it was being sold “ at its value” . Its cost o f production,
or “ natural price” , was conceived as the monetary expression o f its
value.2 Ricardo argued that “ the relative cost o f production o f two
commodities” — i.e., the ratio in which they would normally exchange
for one another on the market— was “ nearly in proportion to the
quantity o f labour from first to last respectively bestowed upon them” .3
It was “ nearly” , and not exactly, in proportion, o f course, because
there would necessarily be a difference between cost o f production
ratios and embodied labour ratios in the case o f commodities produced
with differently constituted capitals.4
In the Principles, Ricardo was primarily concerned, as he put it
1 Works, IV, p. 397- 2 See, e.g., ibiđ.t I, p. 47, footnote.
2 Ibid., II, p. 35.
4 Ricardo more often considered this proposition in its “dynamic” form— i.e., that in
the case of such commodities a rise or fall in wages would cause a change in their cost
of production ratios without anything having happened to the quantities of labour
required to produce them. Cf. Sraffa in ibid., I, p. xlvii.
 R IC A R D O AN D THB LABO UR TH EORY 117
himself, with “ the effect o f the variations in die relative value o f
commodities, and not in their absolute value” .* But it is difficult to
make statements about the one without at the same time impliddy
making statements about the other. It is especially difficult when the
problem o f a theory o f value and that o f an “ invariable” measure
or standard o f value are as closely related in one’s mind as they were
in Ricardo’s. “ It is . . . o f considerable use towards attaining a correct
theory” , wrote Ricardo, “ to ascertain what the essential qualities
o f a standard are, that we may know the causes o f the variation in the
relative value o f commodities, and that we may be enabled to calculate
the degree in which they are likely to operate.” 8 The problem o f
defining the qualifies o f an “ invariable” measure o f value, which
occupied so much o f his attention after the publication o f the second
edition o f the Principles, was not really a new problem: in essence,
Ricardo was still concerning himself with the question o f the validity
o f the simple theory o f value which he had announced in the first
section o f the first edition o f the Principles in 1817.
Nevertheless, the concept o f absolute value was much more fiilly
developed in the later period; and, as I have shown above, the tendency
to identify absolute value with embodied labour became more and
more apparent. No doubt it was always present to some extent:
one can scarcely talk about embodied labour as the “ source” and
“ foundation” o f value, and as being “ realised” in commodities,8
without at the same time tending to regard value as virtually consisting
o f embodied labour. But it was only in the last phase that this idea
was clearly and consciously stated and emphasised. In emphasising
it, Ricardo was no doubt trying to give coherent expression to his
more or less instinctive feeling that “ in fixing on the quantity o f labour
realised in commodifies as the rule which governs their relative
value we are in the right course” .4 If “ the power o f producing value”
were really attributable to “ the labour o f man alone” ;5 i f it were true
that “ all commodities are the produce o f labour and would have no
value but for the labour expended upon them” ;6 and if therefore the
labour embodied in commodifies constituted the very substance
o f their value— then it could hardly be doubted that we were “ in
the right course” in seeking to link exchange ratios to embodied
labour ratios. Embodied labour ratios, it appeared, ought to be the

1 Works, I, p. 21. 2 Ibid., I, p. 17.

3 See, e.g., ibid., I, p. 13, where all these three expressions are used.
4 Ibid., VIC, p. 344. 6 Ibid., I, p. 285. 3 Ibid., IV, p. 397.
Il8 S T U D I E S IN THE L A B O U R T H E O R Y O F V A L U E

sole regulators o f exchange ratios;1 and if they proved upon examin-

how to be solved. And if the “ contradiction” turned out to be very

difficult to solve, this was not to be taken as an indication o f the
inadequacy o f the basic doctrine, but rather as an indication o f “ the
inadequacy o f him who has attempted to explain it” .2
The question o f Ricardo’s place in the history o f the labour theory
may perhaps be considered, first, in relation to the advance which he
made beyond Smith’s version o f the theory, and, second, in relation
to the extent to which he cleared the path for Marx. Ricardo, as we
have seen, begins in the Principles with the assumption that the deter­
mination o f value by labour time is the necessary starting-point for a
proper understanding o f the anatomy o f capitalist society, and then
proceeds to enquire “ whether the other economic relations or categories
conflict with this definition o f value, or how far they modify it” .8
This mode o f approach represented a considerable advance over that
o f Smith, whose accounts o f what Marx called “ the hidden structure
o f the bourgeois economic system” on the one hand, and o f “ the
living forms in which this inner physiology manifests itself out­
wardly” ,4 had proceeded more or less independently, often contra­
dicting one another and not being causally connected in anything like
a satisfactory manner. “ At last, however” , as Marx puts it,

“ Ricardo comes on the stage, and calls to science: Halt!— The

foundation, the starting point for the physiology o f the bourgeois
system— for the understanding of its internal organic coherence
and life process— is the determination o f value by labour time.
Ricardo starts with this, and compels science to leave its old beaten
track and render an account o f how far the rest o f the categories
it has developed and described— the relations o f production and
commerce— correspond to or conflict with this foundation, with the
starting point; how far in general the science that merely reflects
and reproduces the phenomenal forms o f the process— how far
therefore also these phenomena themselves— correspond to the
foundation on which the inner connections, the real physiology o f
bourgeois society, rests, or which forms its starting point; and what
in general is the position with regard to this contradiction between
the apparent and the actual movement of the system. This is therefore
1 “ Ought” , of course, only in the sense that this conclusion seemed to follow logically
from the premises.
2 Works, VIII, p. 142. 3 Marx, Theories o f Surplus Value, p. 201.
4 Ibid., p. 202.
 R I C A R D O A N D THB L AB O U R T H E O R Y II9

the great historical significance of Ricardo for the science/’1

But Ricardo’s mode of approach in the Principles, according to
Marx, although historically justified, was still scientifically inadequate,
because “it skips necessary intermediate links and tries to establish
direct proof of the consistency of economic categories with each
other”.® In particular, by his initial identification of “value” with
cost of production, Ricardo in effect postulates the existence not only
of commodities as such (“and nothing else has to be postulated”,
says Marx, “in considering value as such”), but also of “wages, capital,
profit, and even the general rate of profit itself”.3 Thus Ricardo
really begins by taking it for granted that in the case of commodities
produced with the aid of differently constituted capitals “value”
ratios will diverge from embodied labour ratios in a quantitatively
indeterminate manner. Since they must necessarily diverge in this
manner, there is in Ricardo’s opinion little that can be done about
it, except to admit that the original law requires a certain amount
of “modification”, and to seek for an “invariable” measure of value
which will as far as possible show commodities as varying in value
only when there is a change in the quantity of labour required to
produce them.
Ricardo’s criterion of the “perfection” of an “invariable” measure,
as I have tried to point out above, was in large part a reflection of his
deep-rooted feeling that in spite of all appearances to the contrary
embodied labour did in some significant sense constitute and regulate
the “value” of a commodity. The fact that embodied labour ratios
were not in normal cases strictly proportionate to exchange ratios
appeared to Ricardo as a “contradiction”—a contradiction which he
himself was unable to solve. Fundamentally, his failure to solve it
was due to the fact (already indicated above) that “at a point when he
was only as yet concerned in explaining value, and was therefore
as yet only dealing with the commodity, he suddenly bursts in with the
general rate o f profit and all the conditions which arise from the higher
development of capitalist productive relations”.4 Instead of assuming
the general rate of profit in advance, Marx argues,
“Ricardo should rather have investigated how far its existence is
in any way consistent with the determination of value by labour
time; and he would then have found that instead of being consistent
1 Theories o f Surplus Value, p. 203. 2 Ibid., p. 202.
8 Ibid., p. 205. 4 Ibid., p. 251.
120 STU D IES IN THE L A B O U R T H E O R Y OF V A L U E

with it, prima facie it contradicts it, and its existence has therefore
through a number o f intermediary stages— am
explanation which is something very different from merely in­
cluding it under the law o f value/*1
In Marx’s opinion, then, it is only if the problem o f the “ contra­
diction” is posed in terms o f the derivation o f equilibrium prices
from labour-determined “ values” that it can be adequately solved.
Ricardo, “ instead o f deriving the difference between production
prices [i.e., equilibrium prices] and values from the determination
o f value itself, admits that values are themselves determined by in­
fluences independent o f labour time” . Here, Marx adds, “ would
have been the place for him to define the concept o f ‘absolute’ or ‘real’
value, or ‘value’ as such” .2 Marx was not o f course aware o f the
increasing emphasis which Ricardo in fact laid on “ the concept
o f ‘absolute’ or ‘real’ value” in the last years o f his life, nor o f his
increasing tendency to identify absolute value with embodied labour.
Had Marx known o f this he would probably have regarded it as an
important step in the direction o f the correct solution o f the “ contra­
diction” . Certainly most o f the essential ingredients o f the Marxian
solution— including the quite indispensable idea that profits depend
upon the “ proportion o f the annual labour o f the country [which]
is devoted to the support o f the labourers” 24— were ready to hand
in Ricardo’s work by the time he died. The important quality which
was lacking in Ricardo, but abundantly present in Marx, was a proper
appreciation o f the fact that problems of economic theory, even in
such abstruse spheres as that o f value, were not only problems o f
logic but also problems o f history.
1 Theory o f Surplus Valuef p. 212. 2 Ibid., p. 232.
8 Ricardo, Works, I, p. 49.
4 And even including— in a deleted passage (IV, p. 312)— a distinction very dose in
substance to that later made by Marx between constant and variable capital.
 C h apter Fo u r

KARL MARX’S THEORY OF VALUE (i)

i. The Development o f Value Theory from Ricardo to M arx
HE two decades between 1823, when Ricardo died, and 1844,

T when Marx wrote his Okonomisch'-philosophische Manuskripte,

saw a number o f important developments in the field o f value
theory. On the one hand, the labour theory which Ricardo had
put forward was increasingly attenuated and vulgarised by several
o f his supporters, and rejected outright by many o f his opponents
who developed new theories in place o f it. On the other hand, the
idea that all value was attributable to the expenditure o f human labour
was enthusiastically adopted by a number o f radical economists
who used it to support their demand that the working class should
receive the whole (or at least a greater share) o f the produce o f its
labour. These two decades, in fact, witnessed the first stage o f that
fascinating historical process whereby the labour theory o f value
was in effect rejected by the orthodox economists and taken over by
representatives o f the working-class movement. The second— and
incomparably more important— stage o f this process was ushered
in by Karl Marx.
Ricardo, as a contemporary critic pointed out, had believed that
“ the idea o f value in commodities cannot even be conceived without
being mingled with the idea o f their relation to mankind and to
human labour, o f which some portion must always be employed in
procuring them originally” .1 After Ricardo’s death, the retreat
o f the more respectable economists from this basic idea was quite
remarkably rapid. After 1826, when the third edition o f James Mill’s
Elements o f Political Economy was published, practically the only
reputable economist to continue to defend Ricardo’s theory o f value
(apart from a few relatively unimportant popularisers who did little
more than expound it) was J. R . McCulloch, and his defence contained
target
for the critics. By 1829 Samuel Read could refer, not too unfairly,
to “ the almost universal rejection o f labour as the standard” ;2 and by
1 Sam uel R ea d , A n Inquiry into the Natural Grounds o f Right, etc. (1829), p. viii, footnote.
2 O p. cit., p. 203.
 122 STU D IES IN THE L A B O U R T H E O R Y OF V A L U E

1831 Cotterill could state that he felt himself obliged to repeat the
ise he suspected
that “ there are some Ricardians still remaining” .1 In place o f the
labour theory, the critics o f Ricardo began to erect new theories of
value, the lineal descendants o f which are the various theories regarded
as orthodox in the West today.
The reaction against Ricardo's theory o f value took a number o f
different forms. In the first place, his concept o f real or absolute value
was criticised by men like Torrens, Bailey, and the anonymous
author o f Observations on Certain Verbal Disputes in Political Economy,
on the grounds that exchange value was something essentially relative.
In the second place, his opinion that explanations of value in terms
o f “ supply and demand” alone were quite worthless was disputed
by the followers o f Lauderdale and Malthus (and, o f course, by Malthus
himself).2 In the third place, his contention (as against Say) that a
commodity is not in fact “ valuable in proportion to its utility” 3
was attacked by a number o f writers who laid increasing emphasis
on the role played by utility in the determination o f value. For the
most part, these writers held some sort o f supply and demand theory,
and their emphasis on utility signified little more than that greater
attention was being paid to the “ demand side” o f the so-called value
equation; but in a few fairly well-known cases economists were to be
found putting forward what was in effect a utility theory o f value. This
new emphasis on utility was often associated with one or another
variant (usually fairly rudimentary) o f the “ productivity” theory
o f distribution. The value o f the “ productive services” o f the agents
o f production, some writers began to urge, must be derived from
the utility to consumers o f the goods which the agents contributed
to produce; and the moral was occasionally drawn (as, e.g., by Read
1 C . F. C otterill, Art Examination o f the Doctrine o f Value, etc., p. 8.
2 Schum peter, History o f Economic Analysis, p. 601, says that R icard o “ was com pletely
blind to the nature, and the logical place in econom ic theory, o f the supply-and-demand
apparatus and . . . to o k it to represent a theory o f value distinct from and opposed to his
o w n ” . B u t the point is, surely, that it was then infact being putforward as “ a theory o f value
distinct fro m and opposed to his o w n ” — as, e.g., b y M althus (cf. the latter’s Principles,
chapter 2, secs. 2 and 3). T o suggest, as Schum peter does, that R icard o was unaware
o f the fact that “ the concepts o f supply and demand apply to a mechanism that is com pat­
ible w ith any th eory o f value and indeed is required b y all” (p. 601) seems to m e to be
quite mistaken, in v ie w o f such explicit statements as those in Works, V o l. II, pp. 38-53;
V II, 250-1; V in , 2 76 -7 ,2 79 ; etc. A ll that R icard o maintained was that it was not enough
to say only that supply and demand regulated value. T h at was sim ply “ saying nothing”
(V m , 279). A th eory o f value, in his opinion, had to m ake some determinate statement
about the level at w h ich the forces o f supply and demand fixed prices in the “ norm al”
case.
8 Works, V ol. V m , p. 276.
 M A R X * S T H E O R Y OF V A L U E ( i ) 123

and Simon Gray) that each “ factor” normally received as a reward

precisely what it contributed to the value o f the final product. In the
fourth place, and finally, Ricardo’s contention that the cost o f pro­
duction o f a commodity (which “ determines supply at a particular
price” 1 and therefore regulates the price itself) must be reduced to
terms o f labour cost, was contradicted by a number of economists.
Some o f them thought it sufficient to say that money costs o f production
determined long-period equilibrium prices, or, like Torrens, that
relative values were determined by the relative quantities o f capital
employed,2 thus impliedly suggesting that it was unnecessary to seek
for any “ real” cost underlying the cost in money or commodities.
Others, like Scrope and Senior, did endeavour to discover the “ real”
cost which lay behind supply, finding it not in labour alone but in
labour plus abstinence— thus implicitly suggesting that a theory
o f value could legitimately be framed in terms o f two or more
determinants without any obligation to reduce them to a common
factor.3
Ricardo and his disciples were o f course themselves partly respon­
sible for this rapid retreat from the labour theory. Ricardo’s formu­
lation o f the theory, as we have seen, was by no means beyond
reproach, and the well-meaning but often unfortunate defences put
up by men like Mill and McCulloch tended only to make matters
worse. In particular, Ricardo’s admission that his original law o f
value required “ considerable modification” in the case o f commodities
produced with the aid o f differently constituted capitals gave the
critics an obvious handle.4 The case o f the wine in the cellar increasing
in value year by year without any human labour being expended
upon it, which had so worried Ricardo,6 proved a stumbling-block
for his disciples also. When Mill suggested that in such cases as this
the “ hoarded labour” (i.e., the capital) employed created additional
value in proportion to the quantity o f it applied, just as the “ immediate
labour” did in other cases,6 and when McCulloch argued that the
1 R icard o , Works, V oL G, p. 45.
2 For R icard o ’s comm ents on this view , see Works, V o L IV , pp. 393 ff.
3 C f. M . H . D o b b , Political Economy and Capitalism, pp. 10-12.

the constitution o f capitals tend to increase as civilisation advances, becom ing “ prodi­
gious” in m o d em times {Principles o f Political Economy, 2nd edn., 1836, p. 88).
6 See, e.g., Works, V o l. IX , pp. 330-1.
6 See, e.g., Elements (2nd edn.), pp. 98-9. W h a t M ill is really tryin g to say here, I think,
is that both imm ediate labour and hoarded labour produce not o n ly value but surplus
value, each in proportion to the quantity applied.
124 S T U D I E S IN TH E L A B O U R T H E O R Y OF V A L U E

“ labour” o f nature was responsible for the increase in the wine’s value,2

(which Ricardo himself always recognised as mere verbal evasions

o f the issue) in order to pour scorn upon the labour theory itself.
None o f them made any real attempt to put forward an alternative
solution to the “ contradiction” which Ricardo’s analysis had revealed.
Other weaknesses in Ricardo’s presentation o f the theory which
came under fire from the critics were his failure to explain how the
apparently unequal exchange between capital and labour could be
reconciled with the labour theory; his lack o f clarity (at least in his
published work) in distinguishing between relative and absolute value
and between a cause and a measure o f value; and the obscurity which
occasionally surrounded some o f his remarks on the determination
o f the value o f labour.
But there is a more important reason for the persistent rejection
or dilution o f the labour theory which is characteristic o f so many
writers during this period. The labour theory— or, rather, the notion
which came to be associated with it that “ labour produces all” —
had begun to be used by a number o f radical writers, and by the
working-class organisations with which they were often associated,
to support their claims for various measures o f economic and social
reform. If labour in fact “ produced all” , these writers were asking,
w hy should it not also receive all— or at least considerably more than
it did at present? Naturally these claims were bitterly opposed: Thomas
Hodgskin was a name to frighten children with in the days following
the repeal o f the Combination Laws in 1824. It was probably inevitable,
therefore, that many o f the more conservative economists should
come to regard Ricardo’s theory o f value not only as logically in­
correct but also as socially dangerous. “ That labour is the sole source
o f wealth” , wrote John Cazenove in 1832, “ seems to be a doctrine
as dangerous as it is false, as it unhappily affords a handle to those
who would represent all property as belonging to the working classes,
and the share which is received by others as a robbery or fraud upon
them ” * There is little doubt that this use (or misuse) o f Classical value
theory by the British radical writers was a potent factor in intensifying

Read and Longfield, for example) seem to have been fairly well
aware o f what they were doing: it was the dangerous character o f
1 See, e.g.pPrinciples o f Political Economy (1st edn.), p. 313. It is o n ly fair to note that this
doctrine was dropped in the second and subsequent editions o f the Principles.
* Outlines o f Political Economyf p. 22, footnote.
 M A R X ’ s T H E O R Y OF V A L U E (i) 12 5
Ricardo’s doctrines, rather than what they believed to be their falsity,

frank expression to the idea that political economy would have

to be re-written from a new angle to make it suitable for consumption
by the labouring classes. Most o f the critics o f Ricardo were no doubt
more innocent, but the objective effect o f their attacks on Ricardo
was the same— to cut the ground from under the feet o f Hodgskin
and his fellow-radicals by exorcising or amending those parts o f Ricar­
dian doctrine upon which the latter relied. It is surely not merely
fanciful to see much o f this reaction against Ricardo as a reflection
o f the general shift by the British bourgeoisie at about this time from
an offensive position as against the landlords to a defensive position
as against the rising working-class movement.1
The majority o f the radical writers— men like Hodgskin, Gray,
Ravenstone, Thompson, Edmonds and others— were more or less
agreed that “ labour” was in some significant sense the only source
o f wealth and value (between which they seldom took proper care
to distinguish), and that the net revenues received by the non-labour­
ing classes were essentially deductions from the “ whole produce”
o f this labour. The necessity for some kind o f social reform seemed to
them to follow, as a sort o f logical corollary, from these premises.
The labour theory o f value, in the somewhat obscure and ambiguous
form in which they often stated it, was invested with an ethical
and political significance which has clung to it in the popular con­
sciousness ever since, and from which it is sometimes claimed
that it cannot possibly be dissociated. This is a question of some
importance, which can perhaps be most conveniently introduced at
this juncture.
Those who suggest that the labour theory o f value necessarily
embodies a particular ethical or political viewpoint often emphasise
the part played in its early development by Locke. It is certainly
true that Locke tended to regard the expenditure o f labour on the
production o f a commodity, not only as conferring “ value” upon it
(leaving aside here the question o f what kind o f value), but also as
conferring a right of property in the commodity upon the individual

to deny, either, that the Lockean theory o f property rights contributed

largely to the building up o f the political atmosphere in which the
1 C f. m y article “ T h e Decline o f Ricardian Economics in England**, Economics, Febru­
ary 1950. C f. also v o n Thiinen, Der Isolierte Stoat (R ostock, 1842-63), V oL I, part a,
pp. 36-48 and 62.
126 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

Classical labour theory of value was eventually able to flourish, or

that many o f the radicals did in fact look at the labour theory through
Lockean spectacles.1 But that is by no means the same as saying that
the theory itself necessarily embodies a particular ethical or political
viewpoint.2 The Classical labour theory, as I have tried to show above,
grew up in direct association not so much with the Lockean theory o f
property rights as with the concept o f the social division o f labour.
In essence, it was another way of saying that the relations between
things which manifested themselves in the sphere o f commodity
exchange were dependent upon the relations between men which
manifested themselves in the sphere o f commodity production. And
this idea in itself does not seem to me to involve any very definite
ethical or political presuppositions. Certainly there is no evidence
at all that Smith or Ricardo, or Marx for that matter, ever
looked upon the labour theory as anything other than a scientific
tool to be used in the search for the objective laws o f economic
movement.3
One o f the main sources o f the confusion which still remains
on this question is the fact that the labour theory o f value is often
to be found in close association with some sort o f theory o f surplus
value. It is frequently suggested by critics that in such cases the existence
o f surplus value is actually “ derived” from the labour theory itself,
rather than from an objective study o f the facts concerning the distri­
bution o f income. If “ surplus value” does not in fact exist, but is merely
a sort of logical derivative o f the labour theory, then the suggestion
that a particular ethical or political attitude is inherent in the labour
theory certainly becomes rather more plausible. But historically at
any rate, so far from the existence o f surplus value being derived from
the labour theory, the labour theory was in fact evolved precisely
in order to explain the manifest existence o f surplus value in the real
world. The emergence o f a value-difference between input and output,

1 C f. the fo llo w in g early statement from Charles Hall's The Effects o f Civilization (1805),
p. 68: “ W h a tev er things a m an makes w ith his o w n hands, o u t o f such materials as his
proportionate share o f land yields, must be allow ed to be his o w n ; and these m ay b e
accumulated, i f th ey are not consumed b y the m aker o f them ; o r th ey m ay be exchanged
fo r other things, m ade b y and belonging to other people, o f an equal value; to be strictly
estimated b y the quantity o f labour em ployed in m aking the things exchanged."
2 C f. on this w h o le point M . H . D ob b, in a review in Economica, V o L X IX , N o . 73,
pp. 94-5.
8 C f. D o b b , op. rit., p. 95: “ E very econom ic theory has, inevitably, its moral im plica­
tions, and the positivist attem pt to divorce the tw o m ay w e ll have gone too far. B u t
to say that certain implications o f a theory rest on a particular m oral postulate remains
distinct fro m the proposition that the theory itself is so derived."
 M A R x ’ s T H E O R Y OF V A L U E ( i ) 127

which eventually resolved itself into rent and profit and which was

on the part o f its recipients, was regarded by the Classical economists

as a simple fact.1 One of the main tasks which the labour theory
was asked to perform was that o f accounting for the origin and
persistence o f this surplus value and measuring its extent. The labour
theory, it is true, when applied to the analysis o f the economic process,
allowed the phenomenon o f surplus value to reveal itself, and, indeed,
tended to bring it into relief—unlike certain modem theories o f value
which tend to mask it completely.2 But surplus value cannot be said
to be “ derived” from the labour theory in any less rarefied sense than
this.
Ethics and politics may indeed come into the picture if we decide
to pass judgment on this phenomenon. But the labour theory does not
in itself involve any particular ethical or political attitude towards it.
It certainly cannot be taken to imply, for example, that the surplus
value ought to accrue to the labourers rather than to the landlords
and capitalists. This is in fact a question upon which upholders o f the
labour theory have often been sharply divided. Both Adam Smith
and William Thompson, for instance, accepted some sort of labour
theory o f value, and both o f them saw the origin o f profit in the
surplus value which the labourers employed by the capitalist added
to the raw materials upon which they worked.3 But the respective
judgments which they passed on this state o f affairs were o f course
very different indeed. Smith, by and large, regarded an economic
system based on the appropriation o f surplus value by landlords and
capitalists as the best o f all possible systems. Thompson, on the other
hand, roundly condemned such a system. In actual fact, it was only
when the working-class movement began to grow in strength and
articulateness, and alternative modes o f economic organisation began
to be mooted, that the appropriation o f surplus value came to be at all

1 W h e n K eynes said that “ interest to-d ay rewards no genuine sacrifice, any m ore
than does the rent o f land” (General Theory, p. 376), he was in effect saying o f interest
and rent w hat the Classical economists tended to say not o n ly o f these tw o classes o f
incom e but also o f profit.
2 C f. M . H . D o b b , Political Economy and Capitalism, pp. 22 and 30-3.
3 See, e.g., Wealth o f Nations, V o l. I, p. 67: “ In all arts and manufactures the greater
part o f the w o rk m en stand in need o f a master to advance them the materials o f their
w o rk , and their w ages and maintenance till it be compleated. H e shares in the produce
o f their labour, or in the value w hich it adds to the materials upon w h ich it is bestow ed;
and in this share consists his profit.” C f. R icard o, IV , pp. 379-80; and Thom pson,
Inquiry into the Principles o f the Distribution o f Wealth, p. 166.
128 STU D IES IN THE L A B O U R T H E O R Y OF V A L U E

widely condemned.1 And it was only then that it began to be suggested,

by both friends and enemies o f the working-class movement, that the
labour theory embodied a particular ethical and political viewpoint.
In so far as writers like Thompson, Proudhon and Rodbertus
adopted this attitude towards the labour theory, their work came in
for strong criticism from Marx. It was quite wrong, Marx argued
in effect, to suggest that it followed from the labour theory itself
that the whole produce o f labour ought to accrue to the labourers
and that therefore a socialist system ought to be instituted. This
was mere utopianism, and the negation o f science. It was quite true,
o f course, that when the labour theory was applied to the study o f
capitalist reality the fact that certain classes received “ unearned”
incomes was brought into relief. But, as Engels put it, “ If we now say:
that is unjust, that ought not to be so, then that has nothing immedi­
ately to do with economics. W e are merely saying that this economic
fact is in contradiction to our moral sentiment.” 2 The labour theory
was a scientific tool for the analysis o f capitalist reality, and to suggest
that it embodied a particular ethical or political viewpoint was simply
to mix up economics and morality. The necessity for socialism certainly
followed from the laws o f capitalist development which the labour
theory helped to reveal; but it definitely did not follow, as a sort o f
logical corollary, from the labour theory itself.
One point, however, remains to be added. While it is true that the

1 T h e earlier attitude to the appropriation o f surplus value is w e ll illustrated b y a passage

in M rs. M arcet’s im m ortal Conversations on Political Economy. T h e inim itable M rs. B . has
just given her pupil Caroline an explanation, along the traditional Smithian lines, o f the
origin o f profits. T h e tender-hearted C arolin e says that she has “ some scruple as to the
m ode o f obtaining this incom e". I f the labourer can in fact produce m ore than the value
o f his wages, w h y should he not be allow ed to keep the w h o le o f his earnings? “ It is
surely a great discouragem ent to his industry” , Caroline opines, “ to be obliged to y ield
part o f them to his em ployer.” T h e burden o f Mrs. B .’s rep ly to this sentimental heresy
is sim ply that i f the capitalist w ere com pelled to “ allow the labourer the w h o le o f the
profit arising fro m his w o rk ” , n ob od y w o u ld be prepared to g iv e the labourer any w o rk ,
and “ industry w o u ld be paralysed” . “ So far from considering the profits w h ich the capi­
talist derives fro m his labourers as an evil” , she concludes, “ I have alw ays thought it one
o f the most beneficent ordinations o f Providence, that the em ploym ent o f the poor
should be a necessary step to the increase o f the wealth o f the rich.” (Q uotations from
6th edn., 1827, pp. 95-8.)
2 From Engels’s preface to the first Germ an edn. o f M a rx ’s Poverty o f Philosophy, re-
printed in the English edn. (Lawrence and W ishart), at p. 11. Engels qualifies this rem ark
b y adding the fo llo w in g : “ B ut w h at form ally m ay be econom ically incorrect, m ay all
the same be correct fro m the point o f v ie w o f w orld history. I f the moral consciousness
o f the mass declares an econom ic fact to be unjust, as it has don e in the case o f slavery
o r serf labour, that is a p ro o f that the fact itself has been outlived, that other econom ic
facts have m ade their appearance, o w in g to w hich the form er has becom e unbearable
and untenable. Therefore, a v e ry true econom ic content m a y b e concealed behind the
form al econom ic incorrectness.”
 M A R X ’ s T H E O R Y OF V A L U E ( i ) 129

labour theory o f value in itself docs not embody any particular ethical
or political viewpoint, it is also true that in the case of Marx (and to
some extent in the case o f Smith) it was associated with a very definite
ethical and political viewpoint. When an economist sets out to analyse
the economic process he generally starts with a kind o f “ vision” (as
Schumpeter calls it)1 o f that process. This “ vision” normally includes
some sort o f basic principle o f causation which the economist decides
will be useful in the explanation o f the process, and this principle
o f causation tends to find expression in the theory o f value with which
his subsequent analysis begins. The theory o f value, in other words,
expresses in a generalised way the angle from which the economist
believes the process should be analysed. The labour theory, for example,
says in effect that the process should be analysed in terms o f the social
relations between men and men in the production o f commodities.
In the case o f Marx, the particular principle o f causation expressed
in this theory was identical with that applied by him to the other
(non-economic) aspects o f the social process as a whole; and this
principle was o f course intimately bound up with the particular
philosophy which he extended to his study o f social life. Thus Marx’s
labour theory o f value, being so closely associated with the materialist
conception o f history and philosophical materialism, was naturally
also associated with the ethical and political conclusions involved
in the world outlook o f Marxism. But it will be clear that this associ­
ation was entirely different in character from what it is often supposed
to have been, and that it by no means impugns the scientific quality
o f the labour theory.

2. The Early Development o f Marx*s Economic Thought

I have suggested above that the labour theory o f value, in its formula­
tion in the eighteenth century by Adam Smith, was closely associated
with a rudimentary materialist conception o f history. Smith, like Marx,
was a whole man, whose aim was to combine a theory o f political
economy and a theory o f history— and, o f course, a theory of moral
philosophy— into one great general system. After Smith’s death,
however, a divorce occurred almost immediately between the Classical
theory o f history and the Classical theory o f political economy. The
former was developed by John Millar, who was not particularly
competent in matters o f economic theory; and the latter was developed
1 History o f Economic Analysis, p. 41.
130 S T U D IE S IN THE L A B O U R T H E O R Y OF VALUE

by Ricardo, who, in spite o f the efforts o f James Mill,1 was never

able to work up much enthusiasm over sociological questions. In
the work o f some of the post-Ricardian radicals, notably Bray,
Proudhon and Rodbertus, there are vague signs o f a rapprochement,
but it was left to Marx to bring about the decisive reunion, at a very
much higher level. The first really definite intimation o f this reunion
was made by Marx in The Poverty o f Philosophy (1847). And the
outward and visible sign o f it was once again, as it had been in the
beginning, a close association between the labour theory of value and a
materialist conception o f history.
The labour theory of value was not, o f course, Marx’s starting-
point. Indeed, if we limit ourselves to that early period (from
1836 to 1847, say) in which he developed and gradually co­
ordinated the leading ideas which were to serve him as a basis for his
future work, his adoption o f the labour theory o f value appears
rather as a culmination, a sort o f condensed summing-up of his main
conclusions, than as a starting-point. The story o f how Marx came
to the labour theory must be told as an integral part of the story
o f how he became a Marxist.
When Marx went to Berlin University as a student in 1836, it
was almost inevitable that he should soon have been attracted towards
Hegelianism. But the doctrine o f Hegel taken as a whole, as Engels
was later to remark, “ left plenty o f room for giving shelter to the
most diverse practical party views. And in die theoretical Germany
o f that time, two things above all were practical: religion and politics.
Whoever placed the chief emphasis on the Hegelian system could be
fairly conservative in both spheres; whoever regarded the dialectical
method as the main thing could belong to the most extreme opposition,
both in politics and religion.” 2 Marx attached himself to the Hegelian
left wing— the so-called “ Young Hegelians” , who were at that time
mainly concerned with the struggle against religion. His doctoral
dissertation o f 1841, however, at least in the opinion o f some authori­
ties, shows that the process o f his emancipation from Hegel’s idealism
(or, as he and Engels liked to call it, his turning o f Hegel right side up)8
was by that time already beginning. In particular, the “ Absolute
Spirit” , o f which Hegel had regarded history as the unfolding, was
beginning to give place in Marx’s thought (as it had just done in
195 7
1 See, e.g., R ic a rd o ’s Works, V o l. V II, pp. - - See also ibid., p. 382, where R ica rd o
reports to M ill that he has “ read M illar w ith great pleasure” .
2 Engels, Ludwig Feuerbach, English edn. (Lawrence and W ishart), pp. 25-6.
8 See, e.g., Ludwig Feuerbach, pp. 34 and 97.
 MARX’ s THEORY OF V A L U E ( i ) 131

Bruno Bauer*s) to the concept o f “ the selfconsciousness o f man­

kind*’.1
The main body o f the most determined Young Hegelians, Engels
tells us,
“ was, by the practical necessities o f its fight against positive religion,
driven back to Anglo-French materialism. This brought it into
conflict with its school system. While materialism conceives nature
as the sole reality, nature in the Hegelian system represents merely
the ‘alienation* o f the absolute idea, so to say, a degradation o f the
idea. In all circumstances thinking and its thought-product, the
idea, is here the primary, nature the derived element, which only
exists at all by the condescension of the idea. And in this contradic­
tion they floundered as well or as ill as they could.**2

This contradiction, Engels proceeds, was “ dissolved** with the publi­

cation in 1841 o f Feuerbach’s Essence o f Christianity, which “ without
circumlocutions . . . placed materialism on the throne again**.
“ Nature**, said Feuerbach (according to Engels’s account),

“ exists independendy o f all philosophy. It is the foundation upon

which we human beings, ourselves products o f nature, have grown
up. Nothing exists outside nature and man, and the higher beings
our religious fantasies have created are only the fantastic reflection
o f our own essence.**3

With Feuerbach, then, “ the self-consciousness o f mankind’* gave

place simply to the human being, to “ man** in his whole self.4
While Marx apparendy shared to the full in the “ liberating effect”
o f Feuerbach’s book,5 this effect does not seem to have shown itself
at all decisively in his work until his Critique o f the Hegelian Philosophy
o f Law, which he probably wrote between March and August 1843.6
For much o f the period between April 1841 (when he was awarded
1 See H . P. Adam s, Karl Marx in his Earlier Writings, chapter 3. C f. also J. D . Bernal,
M arx and Science, pp. 11-12 ; and Franz M ehring, Karl M arx, pp. 25-31. See also the appen­
dix in the 1948 edn. o f the latter w o rk , pp. 540-2.
2 Ludwig Feuerbach, pp. 27-8. 3 Ibid., p. 28.
4 C f. H . P. Adam s, op. cit., p. 84. 5 Ludwig Feuerbach, p. 28.
8 There has been some dispute over the date o f com position o f this w ork . R iazan ov,
the editor o f the Collected Works o f M a rx and Engels in w h ich it was first published,
argued that it was unlikely to have been w ritten prior to M arch 1843. Landshut and M ayer,
the editors o f a later Germ an edition, on the other hand, maintained that the most prob­
able time o f com position was betw een A p ril 1841 and A p ril 1842. From a rem ark in
M arx’s Critique o f Political Economy (pp. 10-11 o f the K err edn.) it seems probable that at
least the m ajor part o f the w o rk was w ritten betw een the dates m entioned in the text
above, but it m ay w e ll be that he had actually begun it some tim e earlier.
 132 STU DIES IN THE L A B O U R T H E O R Y OF V A L U E

his doctorate) and March 1843 he engaged himseff in political journal-

ism. In the course o f his activities in this sphere, he came face to face
with a number o f social and economic problems, the examination
o f which was destined to exert an important influence on the develop­
ment o f his thought. For example, he wrote an article, which appeared
in Arnold Ruge’s Anecdota, on the censorship instruction issued in
January 1842 by Frederick William IV ; and as contributor to and later
editor o f the Rhenish Gazette he published a number o f pieces dealing
with such subjects as the freedom o f the press, communism, the penal
laws against wood-pilfering in forests, and the situation o f the vine-
growers in the Moselle district.1 During this period he was by no
means a communist: he was still what might perhaps be called a
liberal in politics. But in his various struggles against social injustice
he was evidently coming to experience at first hand the restrictive
effects o f feudal bureaucracy, and was beginning to sense the character
o f the underlying economic forces which were largely responsible for
the conflicts he was investigating.2 When the RJtenish Gazette was
suppressed in March 1843, Marx retired once again to his study, and
embarked (as it appears) on his Critique ofthe Hegelian Philosophy o f Law.
On March 13, a few days before he resigned his editorship o f the
Rhenish Gazette , he had commented in a letter to Ruge that “ Feuer­
bach's aphorisms [in his Preliminary Theses on the Reform o f Philosophy,
which appeared in Anecdota] are not to my liking in one point only,
namely, that they concern themselves too much with nature and too
little with politics, although an alliance with politics is the only way in
which contemporary philosophy can become truth” .3 His Critique
o f the Hegelian Philosophy o f Law took Marx some little way further
along the road towards this alliance. Like Feuerbach, Marx now
“ insists on the human being as the fundamental reality", in opposition
to Hegel, whose “ method of treating concepts as the fundamental
realities makes the relations o f human beings a consequence o f the
relations o f concepts” .4 And in some passages, particularly those
where Marx discusses the relations between state and society, there are
glimpses o f the next stage in Marx’s journey along this road— the
substitution o f man in society for Feuerbach’s abstract “ human being” .5
1 These im portant articles are described b y H . P. A dam s, op. cit,, chapters 4 and 5,
passim.
2 C f. B em al, op. cit., p. 14. 3 M ehring, op. cit.%p. 53.
4 Adam s, op. cit., p. 83.
6 I should emphasise here that although I am telling the story o f M a rx ’s early intellectual
developm ent in terms o f his progress through a series o f specific “ stages” , I am doing
so m ainly in order to highlight the general direction o f this developm ent. N aturally
 M ARX *S T H E O R Y OF V A L U E (i) 133
This next stage, however, was not really reached until the writing
o f the two important essays which Marx contributed to the Deutsch-
Franzdsische Jahrbucher. Marx left Germany for Paris, where he and
Ruge were to edit this journal, in November 1843; but the two
essays which he wrote for the first (and only) issue— On the Jewish
Question and Introduđion to a Critique o f the Hegelian Philosophy o f Law —
were probably drafted before he left Germany.1 Their basic theme
is announced right at the outset o f the Introduction:

“ As far as Germany is concerned the criticism o f religion is virtu­

ally completed and the criticism o f religion is the premise o f all
criticism. . . .
“ The foundation o f profane criticism is: man makes religion,
religion does not make man. Religion, indeed, is the self-awareness
and self-assurance o f man when he has either not yet come ,to him­
self or has lost himself again. But ‘ man is no abstract being, drifting
about outside the world. ‘Man is the world o f man, the state, society.
These— the state, society,— produce religion, a false, ‘upside-down*
consciousness o f the world, because they are a world where every­
thing is upside-down. Religion is the general theory o f this world__
The struggle against religion is thus indirecdy the struggle against
the world whose spiritual aroma is religion. . . .
“ The transcendence o f religion, as the illusory happiness o f the
people, is the demand for their real happiness. The demand that
they abandon illusions about their condition is the demand to
abandon a condition which requires the illusions. The criticism o f
religion is therefore in embryo the criticism o f the vale o f tears
whose halo is religion.**2
Here, then, Feuerbach’s abstract “ human being1* at last gives place
to man in society, man in his social relations.
Basing himself on this concept, Marx approaches in these two
remarkable essays very much closer to that alliance o f philosophy
with politics which he was now quite consciously striving to bring
about. In the Introduction, we have what is to all intents and purposes
a preliminary sketch o f the Marxian theory o f the proletarian revolu­
tion, and, in the Jewish Question, an early draft o f the Marxian theory
d ie “ stages” w ere b y n o means as definite and precise as m igh t perhaps appear fro m the
text. In particular, some scholars w o u ld w ant to argue that M a rx in effect skipped the
Feuerbachian “ stage” altogether.
1 M ehring, op. cit., pp. 73-4.
2 T h e basis o f this translation is that contained in Bernal, op. cit.t pp. 13-14. (M y italics.)
B u t it has been amended in several places on the advice o f M r. M . M illigan, w hose
assistance here and elsewhere in this section 1 gratefully acknow ledge.
 134 S TU D IE S IN THE L A B O U R T H E O R Y OP V A L U E

o f socialism, with a clear rejection o f utopianism.1 But the analysis

is still rlo th e rl in “ philosophic” dress: Marx cannot yet be said tn h a ve
become a Marxist. Hegel’s dialectics are there, and Feuerbach’s
materialism, and both are developed further. There are frequent
hints o f the great all-embracing theoretical system which is soon
to emerge.2But it is evident that an element o f considerable importance
— what we might call the “ economic” element— is still missing.
During the next two years the missing link was supplied and the whole
system welded together.3 The completion o f the foundations o f the
Marxian theory was above all made possible by Marx’s realisation
o f the fact that “ the anatomy o f . . . civil society is to be sought in
political economy” .4
Three influences operating on Marx during his stay in Paris in 1844
may be said to have largely contributed towards this realisation.
First, there was Paris itself. Marx’s shift from Germany, where
industry was relatively primitive and the working-class movement
relatively undeveloped, to France, where the working-class move­
ment was not only much more powerful but also visibly moving
towards socialist ideas, evidently exercised a considerable influence
on the development o f his thought. I have already suggested, when
dealing with the evolution of Adam Smith’s thought, that the facility
with which the situation o f different countries at different stages
o f socio-economic development can be contrasted may affect the extent
to which the attention of social scientists is directed to the importance
o f “ economic” factors in the historical process; and there seems to me
to be an interesting parallel in this respect between the evolution
o f Smith’s thought and that o f Marx. It was surely no accident that
Marx’s main subjects o f study during 1844 should have been the French
Revolution and political economy.
The second influence was that o f Engels. Engels’s opportunities
to contrast a relatively undeveloped economy with a relatively
1 T h e tw o essays have been translated into English (not v e ry satisfactorily) b y H. J.
Stenning in a vo lu m e entitled Selected Essays. C f. the accounts in M ehring, op. tit., pp.
64 ff., and A dam s, op. tit., chapter 7.
2 Particularly im portant in this connection are the glimpses o f the materialist conception
o f history in the essay O n the Jewish Question.
3 C f. Adam s, op. tit., p. 92: “ T h e M arxian doctrine o f 1844 does not com bine the tw o
elements, dialectic and materialism, in a single system. Th ree or even tw o years later
the system is there. Intensive study o f econom ics and ab ove all o f econom :~ history
filled the in te r v a l.. . . ” M ention should also be made in this connection o f M arx’s intensi­
fied study o f the French R evolu tion and his developm ent o f the concept o f the class
struggle.
4 M arx, Critique o f Political Economy (Kerr edn.), p. 11. I have substituted “ civil” for
41 •■^»1
CIVIC .
 M A R x ’ s T H E O R Y OF V A L U E (i) 135
developed one were even greater than Marx’s, for in 1842 he left

which his father was a partner. In England at this time, o f course,

it was even more evident than in France that “ the anatomy o f civil
society” was to be sought in political economy. Prior to his departure
for England, Engels’s intellectual development had been somewhat
similar to Marx’s; and Engels too, after his arrival in the new country,
began to study political economy. His influence on Marx really dates
from the publication in the Deutsck-Franzosische Jahrbiicher o f his
remarkable article Outlines o f a Critique o f Political Economy, which
was in fact the starting-point o f Marx’s economic research; but it was
not until September 1844 that the partnership between the two men
was, as it were, formally constituted. In the beginning, it was Engels
rather than Marx who was the economist o f the partnership, and the
importance o f his influence on Marx at this time lay not only in the
fact that his own economic studies were then more advanced, but also
in the fact that Marx was able to obtain, from a man who had come
to think very much in the same terms as he himself had, up-to-date
information concerning the development o f British industry and the
British working-class movement.
The third influence was that o f the Classical economists, notably
Smith and Ricardo. Marx’s note-books o f this period have been
preserved.1 They contain lengthy extracts not only from Smith
and Ricardo, but also from Say, James Mill, McCulloch, and others,
together with Marx’s own comments on certain passages. And as
well as the note-books, we also have the manuscripts on political
economy and philosophy which Marx wrote in the summer o f 1844.
These manuscripts require further discussion, since they sum up
an extremely important stage in the development o f Marx’s thought.
The manuscripts are by no means in a finished state, and it is perhaps
rash, especially for one who is not a philosopher, to try to summarise
their main themes. But broadly speaking, Marx appears in this work
(which was intended as the first o f a series in which a systematic theory
o f society would be developed) to be attempting to draw certain
important parallels and differences between Hegelian philosophy and

to have been revealed to him largely as a result o f his study o f Classical

political economy, and in particular of the Classical concept o f labour.
Both systems o f thought, he argues in effect, possess the virtue that
1 Marx-Engels Gesamtausgabe, A b t. 1, B d . 3.
 136 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

they regard labour as being in a certain sense the “ essence” o f man:

abstract mental [geistig] labour” ,1 the Classical economists conceive

o f labour in a much more important sense. In particular, as distinct
from their predecessors the Mercantilists and the Physiocrats, the
Classical economists recognise that labour constitutes “ the unique
essence o f wealth” fz thus doing away with the old idea that wealth,
or private property, is something as it were exterior to man, and insist­
ing instead that it is really something of which man is the very sub­
stance. Then again, both systems o f thought possess the defect that they
treat certain abstractions as if they were ultimate realities, without
recognising that it is necessary to bring them down to earth.
Hegel regards concepts as the ultimate realities, so that with him
the relations o f human beings (which according to Marx actually
constitute the real “ subject”) are seen as a consequence o f the relations
o f concepts (which actually constitute the real “ predicate”). And
Classical political economy, while there is little fault to be found with
the actual laws which it propounds, is nevertheless guilty o f starting
out from the assumption o f private property without criticising it,
without showing how the laws which it propounds proceed from the
very essence o f private property itself.
Marx's own critique o f private property in the manuscripts is
expressed in terms o f the interesting Hegelian (and Feuerbachian)
concept o f “ estrangement” . At the end o f what is called the
“ first manuscript” , after an extended survey and criticism o f the
facts and laws regarding wages, profit and rent disclosed by the
economists (mainly Smith),3 there is a section entitled “ Estranged
1 Gesamtausgabe, A b t. i , B d. 3, p. 157. 2 Ibid., p. 108.
3 O n e passage fro m the section on w ages m ay perhaps be quoted here, since it illus­
trates both the general character o f M a rx’s critique and the essential part w hich the con­
cept o f labour played in it. T h e political economist, M a rx says, “ tells us that originally
and according to the v e ry concept the whole product o f labour belongs to the labourer.
B u t at the same tim e he tells us that in reality the labourer receives no m ore than the
necessary m inim um o f the product— o n ly so m uch as is necessary fo r him to exist not as
man but as labourer, to reproduce not hum anity but the slave class o f labourers. T h e
political econom ist tells us that everything is purchased w ith labour, and that capital is
nothing else but accum ulated labour, but at the same tim e he tells us that the labourer, far
from being able to purchase everything, is forced to sell h im self and his hum anity. T h e
rent o f the idle landow ner usually amounts to a third o f the produce o f the earth, and the
profit o f the active capitalist amounts even to as much as double the interest on m oney,
b ut the gain w h ich the labourer makes at best is such that tw o o f his four children must
starve to death. A cco rd in g to the political economist it is o n ly th rough labour that man
increases the value o f the products o f nature, labour being his active property, but accord­
in g to that same political econom y the landowner and capitalist, w h o qua landow ner
and capitalist are m erely privileged and idle gods, are everyw h ere in a superior position
to the labourer and la y d o w n laws fo r him . A ccording to the political econom ist labour
 M A R X ’ s T H E O R Y OF V A L U E ( i) 13 7

Labour” 1 in which Marx’s version o f the concept o f estrangement is ex­

plained . Political economy, Marx argues, does not properly understand
the laws which it puts forward; it does not understand how these laws
originate from the nature o f private property itself. The starting-point
ought rather to be the objective economic fact that the more wealth
the worker produces the poorer he grows. A portion o f the worker’s
labour, o f his life, is embodied in his product, and becomes “ estranged”
from him. The product o f the worker’s labour stands opposed to him
as something alien, as a power independent o f him. And the estrange­
ment o f labour shows itself not only in the result o f production, but
also in the very act o f production. Man’s own productive activity
becomes something alien to him, belonging not to him but to another.
He works only when he is physically compelled to do so, and he feels
really free only when performing his animal, as opposed to his human,
functions. In addition, the estrangement o f labour estranges man from
his own species, for it is in production that man confirms himself as a
conscious member o f his species.2The product o f labour is the objectiv-
isation o f the life o f man as a species, and the estrangement o f labour
in effect deprives him of his life as a species. The real importance o f all
this lies in the fact that by creating a product which does not belong
to him, the producer also creates the power o f the non-producer
over production and the product. The consequence o f the estrange­
ment o f labour is private property, and political economy, in pro­
pounding the laws of private property, has in fact done no more than
give expression to the laws o f estranged labour.
Marx does not deny, however, that political economy has on
the whole expressed these laws accurately. His main ground of com­
plaint, in effect, is that political economy has not delved sufficiently
far into the question o f the origin and nature o f the capital-labour
relationship. “ The relationship o f private property” , Marx writes,
is the o n ly invariable price o f things, but there is nothing m ore exposed to chance than the
price o f labour, nothing exposed to greater fluctuations. T h e division o f labour increases
the productive p ow er o f labour, and the w ealth and refinem ent o f society, but it reduces
the w ork er to a machine. Labour brings about the accum ulation o f capital, and w ith it
the increasing prosperity o f society, but it makes the labourer increasingly dependent
u pon the capitalist, places him in a position in w h ich com petition is greater, and drives
him into the w ild race o f over-production, w hich is follow ed b y a correspondingly slack

opposed to the interest o f society, but society alw ays and necessarily stands opposed to the
interest o f the labourer.”
1 Gesamtausga.be, A bt. 1, B d. 3, pp. 81 ff.
2 “ T h e practical creation o f an objective world, the act o f working upon inorganic nature,
is the confirm ation o f man as a conscious m em ber o f the species [Gattungswesen]” (p. 88).
C f. The German Ideology (English edn.), p. 7.
13« S T U D I E S IN TH E L A B O U R T H E O R Y OF V A L U B

“ is labour, capital and the interconnection between the two” ;1

confront one another as two persons is for the economist an accidental

event which can therefore only have an external explanation.” *
The main problem with which Marx was concerned in these sections
o f the manuscripts was essentially the same as that with which he was
later to concern himself in Capital His method o f treatment in Capital
was o f course very different indeed— we hear little more o f the concept
o f estrangement after The German Ideology— but the gap between the
two approaches is not quite as wide as may appear at first sight.
The idea o f the product o f labour standing opposed to the producer
as an alien entity survives in the vital concept o f the fetishism o f
commodities. The notion o f productive activity as the confirmation
o f man as a species also survives, although in a rather less fanciful
form: Marx and Engels always thought o f the essential distinction
between man and other animals in terms o f man's capacity to produce.s
And the idea o f social labour as “ the unique principle o f political
economy” ,4 o f course, remained with Marx to the end. “ It is only
when labour is regarded as the essence o f private property” , wrote
Marx in the manuscripts, “ that economic movement as such can be
fully understood in its real exactitude.” 5
In another important section o f the manuscripts, Marx discusses
the question o f the division o f labour in society. The study o f the
division o f labour and exchange, he says,

“ is o f great interest, because they are the perceptible externalised

expressions o f human activity and inherent power [wesenskraft] as
generic activity and inherent power.
“ The assertion that the division o f labour and exchange are based
on private property is nothing other than the assertion that labour
is the essence o f private property, an assertion which the economist
cannot prove and which we want to prove for him. It is precisely
in the fact that division o f labour and exchange are formations o f private
property, precisely in this fact that there lies the double proof both
that human life needed private property for its realisation and on the
other hand that it now needs the elimination o f private property.
“ Division o f labour and exchange are the two phenomena in relation
to which the economist touches upon the social nature o f his science,
and unconsciously expresses at the same time the contradiction
1 Gesamtausgabe, A b t. i , B d. 3, p. 103. 2 Ibid., p. 133.
3 See, e .g., Engels’s Dialectics o f Nature (English edn.), p. 291.
4 Gesamtausgabe, A b t. I, B d. 3, p. 98. 6 Ibid., p. 138.
 M ARX’ s THEORY OF V A L U E (i) 139

o f his science, the basing o f society on non-social separate interests.” 1

The division o f labour, he says again, is “ the economic expression

o f the social nature o f labour within the alienation” .2 In this section,
Marx comes very close to the important notion that the really funda­
mental tie which unites men to one another in societies based on private
property in the means o f production is their relationship as producers
(and therefore as exchangers) o f commodities. The way is now clearly
laid open for the substitution o f man in his economic relations for “ man
in society” .
Marx’s study o f the Classical concept o f labour, then, can be said
to have been the final and perhaps the most decisive o f the several
influences contributing to the synthesis o f his general system. Certainly,
at any rate, the formulations o f the materialist conception of history
in these manuscripts are considerably in advance o f the anticipations
contained in Marx’s earlier work. Take, for example, the following
passage:
“ This material, direcdy perceptible private property is the material,
perceptible expression o f estranged human life. Its movement—-pro­
duction and consumption— is die perceptible manifestation o f the
movement o f all production hitherto, i.e., the realisation or reality
o f man. Religion, family, state, law, morality, science, art, etc.,
are merely particular ways o f production and are subject to its general
law. The positive transcendence o f private property as the appropria­
tion o f human life is therefore the positive transcendence o f all estrange­
ment, that is, the return o f man from religion, family, state, etc.,
to his human, i.e., social existence.” 3
And in some o f the passages dealing with the transition from feudalism
to capitalism— which read on occasion like a first draft o f parts of
The German Ideology— the principle is even more clearly implied.
Physiocracy is recognised as being direcdy “ the economic dissolution
o f feudal property” ,4 and Classical political economy as “ a product
o f modem industry” , 5 in accordance with the basic idea that “ as
1 Gesamtausgabe, A b t. 1, B d. 3, pp. 143-4. 2 ^id., p. 139. 3 Ibid., pp. 114-15.
4 Ibid., p. io q . M arx adds th at it is “ therefore just as directly the economic transformation,
the restoration, o f this feudal property, except that its language is n o w no longer feudal,
b ut becom es econom ic” .
fi Ibid., p. 107. T h e w h o le passage in w h ich this phrase occurs is w orth quoting, since it
illustrates v e ry w e ll the im portance w h ich M arx ascribed to the Classical concept o f
labour. “ The subjective essence o f private property” , he writes, “ o f private property as an
activity in itself, as subject, as person, is labour. It therefore goes w ithou t saying that political
econom y, w h ich recognised labour as its principle— Adam Smith— that is, w hich no longer
k n e w private p roperty m erely as a condition outside man, that this political econ om y
 140 S T U D I E S IN TH E L A B O U R T H E O R Y OF V A L U E

generic consciousness, man confirms his real social life and merely repeats

interesting description o f the different ideologies o f the landed pro­

prietor and the capitalist, in which the economic basis o f the conflict
between them is clearly visualised.2 And the two following passages
will serve to illustrate the extent to which Marx had by this time come
to understand the nature o f the motive forces lying behind the transi­
tion from one mode of production to another:
“ With the transformation o f the slave into a free labourer, i.e.,
into a recipient o f wages, the landlord is himself transformed into an
industrial lord, a capitalist, a transformation which comes about first
o f all through the intermediacy o f the tenant-farmer” 3
“ The difference between capital and land, between profit and rent,
and the difference between both o f these and wages, industry,
agriculture, and immoveable and moveable property, is still a historical
difference, not founded in the nature o f the thing, a fixed element
in the formation and genesis o f the opposition between capital
and labour.” 4
It is clear that the distance is not very great between the manuscripts
o f 1844 and The Poverty o f Philosophy o f 1847, in which the materialist
conception o f history and the labour theory o f value once more
appear in close association.
Between 1844 and 1847, Marx’s intellectual development was
inseparably bound up with that o f Engels. As mentioned above,
Engels’s influence had already exerted itself on Marx through the
medium o f the Outlines o f a Critique o f Political Economy, in which
the germs o f a surprising number o f distinctively “ Marxian” economic
theories are to be found. But as from September 1844, when Engels
spent some time with Marx in Paris, the influence became more
personal. While in Paris, Engels wrote his contribution to The Holy
Family, the first work in which he and Marx collaborated. This
somewhat turgid “ Critique o f Critical Criticism” contains an interest­
ing section o f Proudhon, in which a number o f the leading ideas o f
Engels’s Outlines and Marx’s Qkonomisch-philosophische Manuskripte
are co-ordinated and further developed.

should b e regarded as a product o f the real energy and movement o f private property, as
a product o f m odern industry, and, on the other hand, as having speeded up the energy
and developm ent o f this industry, as h avin g glorified it and m ade it into a force o f con-
sciousness."
1 Gesamtausgabe, A b t. 1, B d. 3, p. 117. sIbid., pp. 100-103. 8 Ibid., p. 100.
4 Ibid., pp. 99-100.
 M A R x ’ s T H E O R Y OP V A L U B (i) 141
When Marx was expelled from France at the beginning o f 1845,

two later. It was at this second meeting, apparently, that Marx first
put before Engels, in fairly precise terms, the basic proposition o f the
materialist conception o f history. This proposition, Engels later
remarked, “ we both o f us had been gradually approaching for some
years before 1845. How far I had independently progressed towards it
is best shown by my Condition o f the Working Class in England in 1844 .
But when I again met Marx at Brussels, in spring, 1845, he had it
already worked out, and put it before me in terms almost as clear
as those in which I have stated it here.” 1
In the summer o f 1845, Marx and Engels travelled together to
England, mainly in order to establish new contacts with the British
working-class movement and to further their economic research.
They stayed there for about six weeks. Marx apparently studied a
number o f “ books and extracts” which were in Engels’s possession,
and “ such books as were procurable in Manchester” .2 Upon their
return to Brussels, they decided, as Marx put it, “ to work out together
the contrast between our view and the idealism o f the German philo­
sophy, in fact to settle our accounts with our former philosophic
conscience. The plan was carried out in the form o f a criticism o f the
post-Hegelian philosophy.” 3 This work, The German Ideology, con­
tains the first detailed account o f the Marxian materialist conception
o f history. Although Engels was later to say o f it, perhaps over-
modestly, that the section dealing with Feuerbach (the first and most
important section) “ proves only how incomplete our knowledge
o f economic history was at the time” ,4 and although it does occasion­
ally “ lay more stress on the economic side than is due to it” ,6 it sets
out quite unambiguously from the basic idea lying behind the
materialist conception— the idea that
“ men, developing their material production and their material
intercourse, alter, along with this, their real existence, their thinking
and the products o f their thinking. Life is not determined by con­
sciousness, but consciousness by life.” 6
There is no direct development o f the labour theory o f value in
The German Ideology, but a number o f indications can be found o f the
1 Preface to the English edn. o f 1888 o f The Communist Manifesto. C f. Selected Works
o f M arx, V o L I, pp. 192-3, and Ludwig Feuerbach, pp. 52-3, footnote.
2 The Poverty o f Philosophy, p. 9. 3 Critique o f Political Economy, p. 13.
* Ludwig Feuerbach, p. 16. 6 Selected Works, V o l. I, p. 383.
6 The German Ideology, pp. 14-15.
142 S T U D IE S IN TH E L A B O U R T H E O R Y OF V A L U E

form which that theory was eventually to assume in Marx’s hands. In

“ one o f the chief forces o f history up till now” , as Marx and Engels
call it in one place.1 The core o f the analysis in the Feuerbach section
is in fact to be found in the account which Marx and Engels give
o f the contradictions which are implicit in the division o f labour as
such,2 and o f the various historical extensions o f the division o f
labour— between town and country, production and commerce, etc.8
Division o f labour and private property, Marx and Engels argue, are
identical expressions: “ in the one the same thing is affirmed with
reference to activity as is affirmed in the other with reference to the
product o f the activity.” 4 And the major historical extensions o f the
division o f labour reflect changes in property relationships: for
example, “ the separation o f town and country can also be understood
as the separation o f capital and landed property, as the beginning o f the
existence and development o f capital independent o f landed
property” .5 Noteworthy also in The German Ideology are a passage
in which the essential features o f what Marx and Engels later came to
describe as “ commodity production” are delineated;6 a number o f
hints o f the concept o f “ fetishism o f commodities” which was destined
to play such an important part in the development o f the labour
theory;7 and, finally, the following significant remarks regarding the
method o f political economy:

“ If you proceed from production, you necessarily concern yourself

with the real conditions o f production and with the productive
activity o f men. But if you proceed from consumption, you merely
declare that consumption is not at present ‘human’, that it is necessary
to cultivate true consumption, and so on. Content with this, you can
afford to ignore the real living conditions and the activity o f men.” 8
The German Ideology was not published in the lifetime o f Marx
and Engels. Left by its authors to “ the gnawing criticism o f the mice” ,
after they had failed to find a publisher for it, it did not appear in full
until 1932. Thus it happened that the leading points o f the new theory
were “ first presented scientifically, though in a polemic form” in
Marx’s The Poverty o f Philosophy, written in the winter of 1846-7.9
This work, the last which properly comes within the period o f early
1 The German Ideology, p. 39. 2 Ibid., pp. 20 f f 8 Ibid., pp. 43 ff.
4 Ibid., p. 22. 6 Ibid., p. 44. 6 Ibid., pp. 63-4.
7 E .g .f ibid., pp. 22-3. » Ibid., p. 1 6 4 .
9 Critique o f Political Economy, pp. 13-14.
 M A R X ’ S T H E O R Y OF V A L U E ( i ) 143
development being considered in the present section, is o f some

since it contains Marx’s first direct attempt to analyse the economic

category exchange value from the viewpoint o f the materialist
conception o f history.
Proudhon’s What is Property ?, which appeared in 1840, had received
a favourable reception from Marx and Engels, who described it in
The Holy Family as having ‘ ‘achieved everything that the criticism o f
political economy from the standpoint o f political economy can
achieve” .1 Their attitude towards Proudhon’s System o f Economic
Contradictions (1846), subtitled Philosophy o f Poverty, however, was
extremely critical, and when Marx received the book in December
1846 he set to work almost immediately on a reply to it, which he
called The Poverty o f Philosophy. In a letter to Annenkov, written
shortly after receipt o f Proudhon’s book, Marx sets out clearly the
main grounds o f his disagreement:

, M. Proudhon, mainly because he lacks the historical know­

ledge, has not perceived that as men develop their productive
forces, that is, as they live, they develop certain relations with one
another and that the nature o f these relations must necessarily
change with the change and growth o f the productive forces. He
has not perceived that economic categories are only the abstract ex­
pressions o f these actual relations and only remain true while these
relations exist. He therefore falls into the error o f the bourgeois
economists who regard these economic categories as eternal and
not as historic laws which are only laws for a particular historical
development, a development determined by the productive forces.
Instead therefore, o f regarding the political-economic categories
as abstract expressions o f the real, transitory, historic, social relations,
Monsieur Proudhon only sees, thanks to a mystic transposition,
the real relations as embodiments o f these abstractions. These
abstractions themselves are formulae which have been slumbering
in the heart o f God the Father since the beginning o f the world.” 2

In The Poverty o f Philosophy this leading thesis o f the materialist

conception o f history is consistently maintained, and, in particular,
Marx shows (to quote his own words, written some time later)
“ how confused, wrong and superficial Proudhon remains with
regard to exchange value9 the basis o f the whole thing, and how he
1 Gesamtausgabe, A bt. i, B d . 3, p . 203.
2 Selected Correspondence o f M a rx and Engels (Lawrence and W ishart edn.)f p. 12.
144 STUDIES IN THE L A B O U R T H E O R Y OF V A L U E

even mistakes the utopian interpretation o f Ricardo's theory o f value

At first sight, the economics o f chapter i o f The Poverty o f Philo­

sophy (the section dealing with the theory o f value) seems to be almost
wholly Ricardian. Again and again, both here and elsewhere in the
book, Marx quotes from Ricardo in order to refute Proudhon or to
dispute the latter’s claims to originality. After an interesting discussion
at the beginning o f the work on demand and utility, based mainly
on the traditional Classical analysis, Marx proceeds to give an acute
summary of Ricardo’s theory o f value, arguing that whereas Ricardo’s
theory is “ the scientific interpretation o f actual economic life” ,
Proudhon’s is merely “ the utopian interpretation o f Ricardo’s
theory” .2 Marx insists that Proudhon “ confounds the value o f commo­
dities measured by the quantity o f labour embodied in them with
the value o f commodities measured by ‘the value o f labour’ ” , thereby
(according to Marx) falling into much the same error as that o f which
Ricardo accused Adam Smith.3 Ricardo is quoted extensively on the
effects o f competition,4 on money,6 on inventions,8 and (indirectly)
on the effects upon prices o f a rise in wages.7 Marx accepts Ricardo’s
“ subsistence theory” o f wages without even mentioning that “ social
element” in wages which was destined to play an important part
in Marx’s later economic work and upon which Ricardo himself
laid a certain amount o f emphasis.8 Similarly, the Ricardian theory
o f rent is accepted without serious question,9 although here there
are definite hints o f things to come.10 There is no distinction between
“ labour” and “ labour power” , and no serious analysis o f surplus
value;11 and Marx’s consideration o f the “ modifications” to the
labour theory does not take him very far beyond Ricardo.12
Nevertheless, even in The Poverty o f Philosophy Marx wears his
Ricardianism with a difference. It is in this very work, where more
1 Selected Correspondence o f M a rx and Engels, p. 172.
2 The Poverty o f Philosophy, p. 43. “ R icard o establishes the truth o f his form ula” , M a rx
proceeds, “ b y deriving it from all econom ic relations, and b y explaining in this w a y all
phenomena, even those like ground rent, accum ulation o f capital and the relation o f w ages
to profits, w hich at first sight seem to contradict it; it is precisely that w hich m akes his
doctrine a scientific system .” C f. above, pp. 101 and 118-9.
3 Ibid., pp. 47-9.___________* Ibid., pp. 55-6.___________ 6 Ibid., p. 74-
6 Ibid., p. 81. 7 Ibid., p. 140. 8 Ibid., pp. 44-5. C f. pp. 85-6.
9 Ibid., pp. 129 ff. See particularly pp. 136-7.
11 T he section on “ Surplus Labour” (pp. 76 ff.) does not directly discuss the question
o f the emergence and appropriation o f surplus value.
12 M arx’s comments on the reduction o f skilled to unskilled labour, h o w e v e r (pp.
46-7), represent an advance over R ica rd o ’s.
 MARXES T H E O R Y OF V A L U E ( i ) 145
than anywhere else Marx appears on the surface to be purely and

enabled him to move above and beyond Ricardo is decisively taken.

The central theme o f The Poverty o f Philosophy is that the economic
categories— rent, profit, wages, exchange, value, division o f labour,
competition, money, etc.— are not absolute and eternal, but merely
the abstract expressions o f concrete, historical and transitory produc-
tion-relations between men. And Marx makes it quite clear that in
his opinion Ricardo as well as Proudhon was guilty o f “ represent[ing]
the bourgeois relations o f production as eternal categories” .1
How, then, looked at from the viewpoint o f the materialist con­
ception o f history, does the category exchange value appear? In the
first place, value appears as a historical phenomenon. It presupposes
exchange and the division o f labour,2 each o f which has a history
o f its own. Exchange, Marx points out, has developed from the
days when “ only the superfluity, the excess o f production over
consumption, was exchanged” , to the present time, when almost
all products are exchanged.3 And the division o f labour, too, has
assumed different forms in the course o f its history, all o f them
“ originally bom o f the conditions o f production” and becoming
“ so many bases o f material production” .4 The category value, there­
fore, is applicable only in a society based on one or another form
o f the division o f labour, and on one or another form o f what Marx
here calls “ individual exchange” .
In the second place, value appears as the expression o f a production-
relation between men in such a society. The relationship which mani­
fests itself on the market between goods which are the subject o f
“ individual exchange” is in essence an expression o f the relationship
between the separate producers o f these goods. The following passage
from The Poverty o f Philosophy, which occurs near the end o f the
chapter on value and in a sense sums it up, shows how closely Marx
had then approached to this fundamental idea, which was his starting-
point in Capital:

“ In principle, there is no exchange o f products— but there is the

exchange o f the labour which co-operatea in production. The mode
o f exchange o f products depends upon the mode o f exchange o f
the productive forces. In general, the form o f exchange o f products
corresponds to the form o f production. Change the latter, and the
1 The Poverty o f Philosophy, p. 135. C f. pp. 102-3.
2 Ibid., pp. 28-9. 8 Ibid., p. 30. 4 Ibid., p. 114. C f. pp. 154-5*
146 S T U D I E S I N T H E L A B O U R T H B O R Y OE V A L U B

former will change in consequence. Thus in the history o f society

mode o f producing them. Individual exchange corresponds also

to a definite mode o f production which itself corresponds to class
antagonism. There is thus no individual exchange without the
antagonism o f classes/’1
It is fairly evident, I think, that Marx had by now arrived at the
notion that the labour theory o f value is in essence another way o f
stating the proposition that “ the mode o f exchange o f products
depends upon the mode o f exchange o f the productive forces” .
Once this point has been reached, the period o f early development
o f Marx’s thought comes to an end, and die period o f mature develop­
ment, refinement and application begins.

3. M a rx s Economic M ethod
The materialist conception o f history, then, was the starting-point
o f Marx’s subsequent economic researches, and dictated to a large
extent the economic method which he adopted. It would be quite wrong
to imagine, however, that Marx regarded the materialist conception
as a sort o f fixed and predetermined scheme to which the economic
facts had willynilly to conform. Rather, he regarded it as a hypothesis
which had to be tested by applying it to the economic facts, and his
various economic works— notably the Critique o f Political Economy
and Capital— can perhaps most conveniently be looked upon as steps
in this long and arduous testing process. Lenin puts this point well
when he says that Marx,
“ having expressed this hypothesis in the ’forties, set out to study
the factual (nota bene) material. He took one o f the economic forma­
tions o f society— the system o f commodity production— and on
the basis o f a vast mass o f data (which he studied for not less than
twenty-five years) gave a most detailed analysis o f the laws govern­
ing the functioning o f this formation and its development. This
analysis is strictly confined to the relations o f production between
the members o f society: without ever resorting to factors other
than relations o f production to explain the matter, Marx makes it

economy develops, how it becomes transformed into capitalist

economy, creating the antagonistic (within the bounds now of
relations o f production) classes, the bourgeoisie and the proletariat,
how it develops the productivity o f social labour and how it thereby
1 The Poverty o f Philosophy, pp. 65-6.
 M A R x ’ s T H E O R Y OF V A L U E ( i ) 147
introduces an element which comes into irreconcilable contradiction
to the very foundations o f this capitalist organisation itself. . . .
Now— since the appearance o f Capital— the materialist conception
o f history is no longer an hypothesis, but a scientifically demon­
strated proposition.” 1
One may or may not agree with the judgment which Lenin delivers
at the conclusion o f this passage, but it cannot be doubted that his
account o f the charađer o f Marx’s economic researches is essentially
correct.
Marx and Engels emphasised again and again that their primary
source-material was the concrete facts o f social life and development.
“ W e set out” , they wrote in The German Ideology,

“ from real, active men, and on the basis o f their real life-process
we demonstrate the development o f the ideological reflexes and
echoes o f this life-process. . . . This method o f approach is not
devoid o f premises. It starts out from the real premises and does not
abandon diem for a moment. Its premises are men, not in any
fantastic isolation or abstract definition, but in their actual, empiri­
cally perceptible process o f development under definite conditions.” 2
This is an approach which is evidendy opposed not only to that o f
the idealists (to whom, according to Marx and Engels, history is
“ an imagined activity o f imagined subjects”), but also to that o f
the empiricists (to whom history is “ a collection o f dead facts” ).3
One must necessarily begin with certain general abstractions, but
these must always “ arise from the observation o f the historical develop­
ment o f men” . And too much should not be expected o f them.
In particular, it should be remembered that “ they can only serve
to facilitate the arrangement o f historical material, to indicate the
sequence o f its separate strata. But they by no means afford a recipe
or schema, as does philosophy, for neady trimming the epochs o f
history.” 4
These general abstractions— the leading propositions o f the material­
ist conception o f history— constituted the hypothesis which Marx set
out to test in the field o f economics. Given this basic purpose, the first
task as Marx saw it was to define and investigate the simplest and most
elementary o f the relevant economic categories, “ without ever
1 Lenin, Selected Works (English edn.), V o l. X I, pp. 420-2.
2 The German Ideology, pp. 14-15. C f. Venable, Human Nature: the Marxian View ,
pp. 7 f f
3 The German Ideology, p. 15. * Ibid.
148 STUDIES IN THE L A B O U R T H E O R Y OF V A L U E

resorting to factors other than relations o f production to explain

the matter” . Having done this, one must then proceed gradually
from the simple to the complex, building up the concrete whole
from the separate abstract parts. And at every stage in the analysis,
o f course, the categories must be considered in their interdependence
and in the process o f their development, and the conclusions must
be tested against the facts.
As I have so far described it, Marx’s method does not appear to
differ appreciably from that adopted by any responsible social scientist
in arriving at and testing a hypothesis. But there is rather more to
Marx’s methodology than this— so much more, indeed, that Engels
went so far as to say that “ the working out o f the method which forms
the foundation o f Marx’s Critique o f Political Economy [and, o f course,
o f Capital— R.L.M.] we consider a result o f hardly less importance
than die basic materialistic oudook itself” .1 Within the framework
o f the broad methodological approach outlined above, Marx adopted
what might be called the “ logical-historical method” , one o f the
most interesting and significant o f the fruits o f his Hegelian studies.
The description which Engels gave o f this method in a review o f the
Critique in 1859 has not been bettered, and it can be reproduced almost
in its entirety without apology:

“ Marx was, and is, the only one who could undertake the work
o f extracting from the Hegelian logic the kernel which comprised
Hegel’s real discoveries in this sphere, and to construct the dialectical
method divested o f its idealistic trappings, in the simple shape in
which it becomes the only true form o f development o f thought.. . .
“ The criticism o f economics, even according to the method
secured, could still be exercised in two ways: historically or logically.
Since in history, as in its literary reflection, development as a whole
proceeds from the most simple to the most complex relations, the
historical development o f the literature o f political economy
provided a naturi guiding thread with which criticism could link
up and the economic categories as a whole would thereby appear
in the same sequence as in the logical development. This form,
apparently has the advantage o f greater clearness, since indeed
it is the actual development that is followed, but as a matter o f fact
it would thereby at most become more popular. History often
proceeds by jumps and zigzags and it would in this way have
to be followed everywhere, whereby not only would much material
of minor importance have to be incorporated but there would be
1 Ludwig Feuerbach, p. 98.
 M A R X ’ S TH E O R Y OF V ALU E (i) 149
much interruption o f the chain o f thought; furthermore, the history

society and this would make the task endless, since all preliminary
work is lacking. The logical method o f treatment was, therefore,
the only appropriate one. But this, as a matter o f fact, is nothing
else than the historical method, only divested o f its historical form
and disturbing fortuities. The chain o f thought must begin with the
same thing that this history begins with and its further course will
be nothing but the mirror-image o f the historical course in abstract
and theoretically consistent form, a corrected mirror-image but
corrected according to laws furnished by the real course o f history
itself, in that each factor can be considered at its ripest point o f
development, in its classic form.
“ In this method we proceed from the first and simplest relation
that historically and in fact confronts us, therefore, here, from the
first economic relation to be found [the relation between the pro­
ducers o f commodities— R.L.M.] W e analyse this relation. Being a
relation already implies that it has two sides related to each other.
Each o f these sides is considered by itself, which brings us to the way
they behave to each other, their reciprocal interaction. Contradic­
tions will result which demand a solution. But as we are not consider­
ing an abstract process o f thought taking place solely in our heads,
but a real happening which has actually taken place at some particular
time, or is still taking place, these contradictions, too, will have
developed in practice and will probably have found their solution.
W e shall trace the nature o f this solution, and shall discover that it
has been brought about by the establishment o f a new relation
whose two opposite sides we now have to develop, and so on.” 1

This, then, was the method o f the Critique, as it was also the method
o f Capital. No doubt it was occasionally carried to excess (for reasons
which Marx partly explained in his preface to the second edition o f
Capital)2 but in Marx’s hands it proved on the whole to be extraordin­
arily fruitful. And it had one characteristic which was o f some im­
portance in view o f the fact that it was being used in connection with
the testing o f a hypothesis— it required, as Engels remarked, “ historical
illustrations, continual contact with reality” .3
Although the field covered by Capital extends as far as (and some­
times even further than) the historical boundaries o f the system o f
commodity production, Marx was o f course particularly interested
1 Ludwig Feuerbach, pp. 98-9. C f. Capital, VoL m (Kerr edn.), p. 24.
2 See Capital, VoL I, p. xxx. C f Selected Correspondence, pp. 220-1.
2 Ludwig Feuerbach, p. 101.
 S T U D IE S IN T H E L A B O U R T H E O R Y OF V A L U B

in the analysis o f one specific form o f commodity production—

the
first edition o f Capital, “ I have to examine the capitalist mode o f
production, and the conditions o f production and exchange corres­
ponding to that mode. . . . It is the ultimate aim o f this work, to lay
bare the economic law o f motion o f modem society.” 1 It was true,
o f course, as Engels noted, that in order to carry out this task “ an
acquaintance with the capitalist form o f production, exchange and
distribution did not suffice. The forms which had preceded it or those
which still exist alongside it in less developed countries had also, at
least in their main features, to be examined and compared.” 2 But
even so, Capital was far from being a treatise on what Engels called
“ political economy in the widest sense”— that is, “ the science o f
the conditions and forms under which the various human societies
have produced and exchanged and on this basis have distributed their
products” .3 Capital was primarily concerned with one particular
human society: it dealt in the main with the origin, development
and decline o f capitalist commodity production.
Related to this was a further feature o f Marx’s economic method
which deserves mention here. The use o f the logical-historical method
in the study of any particular social formation does not necessarily
mean that “ the economic categories [ought to be arranged] in the
order in which they were determining factors in the course o f history” .4
Rather, their order o f sequence ought to be settled by the relation
which they bear to one another in the particular social formation
under review. The point is, as Marx emphasised, that “ under all
forms o f society there is a certain industry which predominates
over all the rest and whose condition therefore determines the rank
and influence of all the rest. It is the universal light with which all
the other colours are tinged and are modified through its peculiarity.” 6
In modem bourgeois society, it has to be recognised that “ capital
is the all dominating economic power” .6 The capital-labour relation­
ship is the dominant, determining relationship, and must therefore
be put in the forefront o f the investigation. The natural temptation
to “ start with rent” , a category historically prior to capital, must
:e comes
1 Capital, V o l I, pp. x v ii and x ix .
2 Anti-Diihring (Lawrence & W ish art edn.), p. 169.
3 Ibid., pp. 165 and 168. (M y italics.) See b elow , pp. 264 and 269-70.
4 Critique o f Political Economy, p. 304,
6 Ibid., p. 302. 6 Ibid., p. 303.
 M A R x ’ s T H E O R Y OF V A L U E ( i ) 151

to be more and more merely a branch o f industry and is completely

capital” .
It remains to give some preliminary indication o f the manner
in which Marx’s methodology was related to his treatment o f the
labour theory o f value. The main task which Marx set himself in
Capital, as we have seen, was to explain the origin and development
o f the capitalist economic formation in terms o f the developing
relationships between men as producers. It had to be shown, in the
case both o f commodity production in general and o f capitalist
commodity production in particular, that “ a definite [form of]
production . . . determines the [forms of] consumption, distribution,
exchange, and also the mutual relations between these various
elements” .2 In this demonstration the labour theory o f value evidently
played a key role, since it is in effect “ a particular way o f stating
that social relations o f production determine relations o f exchange” .8
This whole question requires special consideration.
A useful starting-point, I think, is the following statement made
by Marx in Wage-Labour and Capital:
“ In production, men not only act on nature but also on one
another. They produce only by co-operating in a certain way and
mutually exchanging their activities. In order to produce, they
enter into definite connections and relations with one another
and only within these social connections and relations does their
action on nature, does production, take place.” 4

These “ social connections and relations” which men enter into with
one another in production are evidently extremely complex, and
one may look at them from at least two different angles.
First, one may begin by drawing attention to the fact that in any
society based on the social division o f labour different individuals
(or groups) are directly or indirectly assigned to different jobs, so that
the activities o f these separate individuals (or groups) must somehow
be mutually “ exchanged” for one another. A basic distinction which is
likely to impress itself on our minds if we begin by emphasising
this aspect o f men’s production-relations is that between “ exchanges”

1 Critique of Political Economy, pp. 302-3.

8 Ibid., p. 291. In the original the last eight words are italicised.
8 M. H. Dobb, in The Modem Quarterly, Vol. HI. No. 2, Spring 1948. p. 67. Cf. Capital,
V o L I, p. 74: “Magnitude of value expresses a relation of social production.”
4 Selected Works, VoL L p. 264.
15 2 ST U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

“ exchanges** o f activities which take other forms. The exchange o f

commodities— i.e., o f goods produced for some sort o f market by
‘private producers more or less separate from each other*’1— is a
relatively recent phenomenon. Although it began (according to Marx’s
account) on the boundaries o f primitive communities,2 and although
it existed in systems based on slavery and increased in extent under
feudalism, it was only under capitalism that the relation between men
as producers o f commodities came to dominate the whole economic
scene.*
Second, one may begin by drawing attention to the fact that
societies can usefully be distinguished from one another on the basis
o f differences in those relations between men as producers o f which
the property relations specific to a particular epoch are the legal ex­
pression.4 Depending on the character and mode o f distribution
o f the means o f production, men may organise themselves— or be
organised— in many different ways in order to produce the things
they require. Their “ mutual exchange o f activities” in any given
period may be based upon relations o f subordination, or of co­
operation, or o f a transitional and mixed character. It is these relations,
according to Marx, which lend their character to the whole complex
o f production-relations in existence at any given time, and which
therefore afford the proper basis for distinguishing one-economic
system from another and for dividing the history o f mankind into
stages.
In Capital Marx was concerned not with the whole history o f
mankind, but rather with the development o f the broad system o f
commodity production up to and including the stage o f capitalist
commodity production. And it was this capitalist stage, as we have
seen, which was Marx’s main object o f concern. Now the period
during which this development of commodity production took place
was, o f course, characterised by a succession o f different economic
systems, which can be differentiated from one another on the basis
just described. But according to Marx’s method, the starting-point
o f research must be the study of the fundamental relation between
men as producers of commodities, in its general and abstract form,
to
1 Anti-Diihring, p. 336. C f. the definitions in ibid., p. 221, and Capital, V o l. I, pp. 9 and
43-
2 See, e.g., Capital, V o l. I, pp. 59-60. 3 C f. above, pp. 37-8.
4 C f. Critique o f Political Economy, p. 12. It is in this sense that the term “ relations o f
p roduction” is usually em ployed in M arxist literature. C f. above, p. 19, footnote.
 M A R X * S T H E O R Y OF V A L U E ( i ) 153
analyse the nature o f this basic production-relation, and to show in

distribution, exchange” in all commodity-producing societies. The

second and main task, as Marx saw it, was to analyse the manner in
which this broad and simplified picture o f the way in which pro-
duction-relations determine other economic relations is altered and
modified when the capitalist system o f commodity production
replaces the earlier systems.
Once it has been understood that this is essentially what Marx was
trying to do in his economic work, the question o f the place o f the
labour theory o f value in his system is virtually answered. The nearest
that Marx came to answering this question himself was in his famous
letter to Kugelmann o f July 1868:
“ . . . Even if there were no chapter on ‘value* in my book, the
analysis o f the real relationships which I give would contain the proof
and demonstration of the real value relation. The nonsense about
the necessity o f proving the concept o f value arises from complete
ignorance both o f the subject dealt with and o f the method o f
science.
“ Every child knows that a country which ceased to work,
I will not say for a year, but for a few weeks, would die. Every
child knows, too, that the mass o f products corresponding to the
different needs require different and quantitatively determined
masses o f the total labour o f society.
“ That this necessity o f distributing social labour in definite
proportions cannot be done away with by the particular form o f
social production, but can only change the form it assumes, is self-
evident. N o natural laws can be done away with. What can change,
in changing historical circumstances, is the form in which these
laws operate.
“ And the form in which this proportional division o f labour
operates, in a state o f society where the interconnection o f social
labour is manifested in the private exchange o f the individual products
o f labour, is precisely the exchange value o f these products.
“ The science consists precisely in working out how the law o f
value operates. So that if one wanted at the very beginning to
‘explain all the phenomena which apparently contradict that law,
one would have to give the science before the science.” 1
In this exceptionally important passage, Marx proceeds as follows:
First, he emphasises that an understanding o f “ the subject dealt
1 Letters to Kugelmann (Lawrence & W ish art cdn.), pp. 7 3 -4 . 1 have separated the passage
into paragraphs fo r convenience.
154 S T U D I E S IN T H E L A B O U R T H E O R Y OF V A L U E

with and o f the method o f science*’ is required i f his theory o f value

is to be properly understood. He then goes on to point out that
the social division o f labour necessarily has a quantitative aspect— i.e.,
that it implies not only that the total labour o f society must be allo­
cated between the production o f different goods, but also that these
different goods require “ quantitatively determined” masses of labour
to be allocated to their production. Following on from here, he
describes this “ necessity o f distributing social labour in definite pro­
portions” as a “ natural law” which cannot be done away with, but
which may operate in different ways according to “ changing historical
circumstances” . The particular form in which it operates in societies
where goods are produced as commodities, he then suggests, is precisely
the exchange value o f these goods— meaning by this not only that
these goods possess exchange value because they are the products of
proportionally distributed labour in such societies, but also, evidendy,
that the quantity o f exchange value which a unit o f each good possesses
relatively to a unit o f every other is dependent upon the relative
quantities o f the labour o f society which it is necessary to allocate
to their production. Finally, having thus made it clear that exchange
value is a historical category associated with systems o f commodity
production and with systems o f commodity production alone, he
points out that the main task o f the political economy o f commodity
production must be to work out “ how the law o f value operates” .
One must not try right “at the very beginning” to “ ‘explain* all the
phenomena which apparendy contradict that law** (as Ricardo had
done): rather, one should try to explain the phenomena which
apparendy contradict the law in terms o f the operation o f the law
itself
To Marx, then, the task o f showing how relations o f production
“ determine the [forms of] consumption, distribution, exchange**
reduced itself, in its essentials, to the task o f showing “ how the law
o f value operates’* as commodity production develops. The particular
way in which he went about fulfilling this task was largely dictated
by the general methodological approach which he adopted, and,
more especially, by the broad aims which he had primarily in view

in which the law o f value operated under capitalism from the way
in which it operated under, say, feudalism, or slavery, or primitive
communism. Rather, he tended to abstract in this connection from
the specific features differentiating one pro-capitalist form of
 M A R X ’ s T H E O R Y OF V A L U E ( i ) 155
commodity production from another,1 and to concentrate on distin­
guishing the way in which the law o f value operated under capitalism
from the way in which it operated under all these earlier systems
taken together in so far as they were characterised by “ simple” commodity
produđion in which the normal exchange was one o f “ value” for “ value” 8
What he was mainly interested in analysing was the manner in which
the introduction o f capitalist commodity production modified the
influence which the basic relation between men as producers could
be assumed to have exerted upon exchange relations under simple
commodity production. Under both simple and capitalist commodity
production, he argued, the basic relation between men as producers
o f commodities (which persisted throughout the whole period o f
commodity production) exerted its influence on exchange relations
by making the exchange ratios o f commodities a function o f embodied
labour ratios.3 The replacement o f simple commodity production,
in which the direct producers owned their own means o f production,
by capitalist commodity production, in which the direct producers
owned nothing but their labour power (which had itself now become
a commodity), did not mean that exchange ratios ceased to be a
1 C f. Capital, V o L I, p. 148: “ T h e appearance o f products as com m odities presupposes
such a developm ent o f die social division o f labour, that the separation o f use-value fro m
exchange-value, a separation w h ich first begins w ith barter, must already have been
completed. B u t such a degree o f developm ent is com m on to m any form s o f society,
w h ich in other respects present the m ost varyin g historical features." In other contexts,
o f course, it was precisely these “ varyin g historical features” w h ich M arx w as especially
concerned to emphasise.
2 H ie “ simple” circulation o f com m odities, according to M a rx ’s account, is character­
ised b y the form ula C - M - C (Com m odities-M oney-C om m odities), as distinct fro m the
capitalist fo rm o f circulation w h ich is characterised b y the form ula M - C - M (M on ey-
C om m odities-M oney). “ Sim ple” co m m o d ity production is generally carried on b y
independent producers w h o do not em p loy w age-labour and w h o “ sell in order to b u y ” .
T h e typical case is that o f the peasant w h o sells co m in order to b u y clothes, or that o f the
independent craftsman w h o sells clothes in order to b u y com . “ T he circuit C - M - C
starte w ith one com m odity, and finishes w ith another, w h ic h falls out o f circulation
and into consum ption. C onsum ption, the satisfaction o f w ants, in one w o rd , use-value,
is its end and aim. T h e circuit M - C - M , on the contrary, com m ences w ith m on ey and
ends w ith m oney. Its leading m otive, and the goal that attracts it, is therefore m ere
exchange value” (Capital, V o l. I, p. 127). In the simple circulation o f com m odities, the
tw o extrem es o f the circuit “ are b o th com m odities, and com m odities o f equal value”
(ibid.). It is possible, o f course, that the tw o extremes (say, c o m and clothes) m ay in fret
represent different quantities o f value. “ T h e farmer m ay sell his co m above its value, or
m ay b u y clothes at less than their value. H e m ay, on the other hand, ‘be done' b y the
clothes merchant. Y e t, in the form o f circulation n o w under consideration, such differences

not deprive the process o f all m eaning, as it does in M -C -M . T h e equivalence o f their

values is rather a necessary condition to its norm al course” (ibid., p. 128).
31 use the term “ function” here in the sense in w hich it is used in mathematics. W h en
w e say that x is a function o f y, w e m ean that x and y are related to one another in such
a w a y that x depends upon and varies w ith y. T h e particular form w hich this dependence
takes is defined b y the “ shape” o f the function.
156 STUDIES IN THE L A B O U R T H E O R Y OF V A L U E

function o f embodied labour ratios. But die introduction o f capitalism

did mean that the shape o f the function was altered: exchange ratios
were related to embodied labour ratios in a different and more complex
way. Whereas under simple commodity production the law o f value
operated so as to make exchange ratios roughly equivalent to embodied
labour ratios, under capitalist commodity production it operated in a
different way, so that although ratios were still ultimately determined
by embodied labour ratios, the two were no longer necessarily (or
even normally) equivalent to one another.
I have emphasised this point here partly because it is necessary
to grasp it if we are to understand the meaning o f Marx’s theory
o f value and the role which it played in his general system, but more
particularly because it is o f crucial importance if we wish to extract
the essence o f what Marx said from its context and reapply it to the
present-day situation. For Marx, as we have seen, the task o f showing
“ how the law o f value operates” was virtually identical with the
task o f showing how relations o f production determined relations
o f exchange. The particular way in which Marx went about this
task was largely dictated by the fact that he was primarily concerned
to contrast the basic characteristics o f commodity production under
competitive capitalism with those o f simple commodity production.
If, however, we are primarily concerned to contrast the basic charac­
teristics o f commodity production under, say, monopoly capitalism
with those o f commodity production under, say, competitive capital­
ism, the way in which we go about this task will be rather different.
This is a problem which will be further discussed in the final section
o f the present w ork
 C h a p t e r F iv b

KARL MARX’S THEORY OF VALUE (II)

i. The Concept o f Value in Chapter i o f “ Capital”
“T N bourgeois society’*, wrote Marx in his preface to the first
I edition o f Capital (Vol. I), “ the commodity-form o f the product
1 o f labour— or the value-form o f the commodity— is the economic
cell-form. To the superficial observer, the analysis o f these forms
seems to turn upon minutiae. It does in fact deal with minutiae, but
they are o f the same order as those dealt with in microscopic
anatomy.” 1 In Part I o f Capital, under the heading “ Commodities
and Money” , Marx attempts a detailed analysis o f this “ economic
cell-form” , using the force o f abstraction as his microscope.
Referring specifically to this first Part o f Capital in his preface,
Marx said:

“ Every beginning is difficult, holds in all sciences. To understand

the first chapter, especially the section that contains the analysis
o f commodities, will, therefore, present the greatest difficulty.
That which concerns more especially the analysis o f the substance
o f value and the magnitude o f value, I have, as much as it was
possible, popularised. . . .2 I pre-suppose, o f course, a reader who is
willing to learn something new, ana therefore to think for himself.” 3

Every beginning is difficult, for one reason, because one has to be very
carefid not to “ give the science before the science”— i.e., in the case
o f political economy, not to take as given right at the beginning
economic categories which should properly be developed only
at a later stage. Having already criticised Ricardo and Proudhon
for doing precisely this, Marx had to be specially careful not to fall
into the same error himself. Beginnings are difficult, too, if one's
methodological approach cannot be stated in detail at the outset
without appearing to anticipate results which are still to be
1 Capital, V o L I, p. x v i.
* A footnote here read& as fo llo w s: “ T h is is the m ore necessary, as even the section
o f Ferdinand Lassalle’s w o rk against Schulze-Delitzsch, in w h ic h he professes to g iv e 'the
intellectual quintessence* o f m y explanations on these subjects, contains im portant m is­
takes ”
2 Capital, V o L I, pp. x v - x v i.
158 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

proved.1 And this particular beginning was difficult for at least two
other reasons as well— first because a considerable amount o f the ground
had already been covered in the Critique, and second because some
of the passages on value in Marx’s earlier economic works had been
seriously misunderstood in working-class circles. Thus Marx had to
decide which o f the points “ only hinted at in the earlier book” should
be “worked out more fully” in Capital, and which o f the points
worked out fully in the Critique should be only “ touched upon” in
Capital;2 and he had at the same time to decide which parts o f the
analysis he could afford to “ popularise” without risking further
misunderstandings.
The analysis begins with a reformulation o f the passages in the
Critique dealing with what Marx had there called the “ twofold
aspect” of commodities— “ that o f use value and exchange value” .8
A commodity, he writes, “ is, in the first place, an object outside us,
a thing that by its properties satisfies human wants o f some sort or
another”.4 Use values “ constitute the substance o f all wealth, what­
ever may be the social form o f that wealth. In the form o f society
we are about to consider [i.e., commodity-producing society—
R.L.M.] they are, in addition, the material depositories o f exchange
value.” 5
Exchange value, Marx proceeds, “ at first sight, presents itself as a
quantitative relation, as the proportion in which values in use o f one
sort are exchanged for those o f another sort, a relation constantly
changing with time and place” . Thus exchange value “ appears to be
something accidental and purely relative, and consequently an in­
trinsic value, i.e., an exchange value that is inseparably connected
with, inherent in commodities, seems a contradiction in terms” .
But, he suggests, things will appear otherwise i f we “ consider the
matter a little more closely” .6 The passages in which he goes on to
do this have been so seriously and persistently misinterpreted that
they must be reproduced in full. The paragraphs are numbered for
convenience.

1 C f. Marx’s preface to the Critique, in w hich he writes: “ I om it a general introduction

w hich I had prepared, as on second thought any anticipation o f results that are still to be
proven, seemed to m e objectionable, and the reader w h o wishes to fo llo w m e at all, must
make up his m ind to pass fro m the special to the g e n e ra l” H o w ev er, he adds, “ som e
remarks as to the course o f m y ow n politico-econom ic studies m ay be in place here” ,
and he goes on to g iv e an account o f the materialist conception o f history, “ w hich, once
reached, continued to serve as the leading thread in m y studies” .
2 Capital, V o l I, p. x v . 3 Critique, p. 19. 4 Capital, V o l. I, p. 1.
fi Ibid., VoL I, pp. 2-3. 6 Ibid., V o l. I, p. 3*
 M A R X ’ S T H E O R Y OF V A L U E ( i l ) 159
(1) “ A given commodity, e.g., a quarter o f wheat, is exchanged
for x blacking, y silk, or z gold, &c.— in short, for other com-
modities in the most different proportions. Instead o f one exchange
value, the wheat has, therefore, a great many. But since x blacking,
y silk, z gold, &c., each represent the exchange value o f one quarter
o f wheat, x blacking, y silk, z gold, dec., must, as exchange values,
be replaceable by each other, or equal to each other. Therefore,
first: the valid exchange values o f a given commodity express
something equal; secondly, exchange value, generally, is only the
mode o f expression, the phenomenal form, o f something contained
in it, yet distinguishable from it.
(2) “ Let us take two commodities, e.g., com and iron. The propor­
tions in which they are exchangeable, whatever those proportions
may be, can always be represented by an equation in which a given
quantity o f com is equated to some quantity o f iron: e.g., 1 quarter
c o m = x cwt. iron. What does this equation tell us. It tells us that
in two different things— in 1 quarter o f com and x cwt. o f iron,
there exists in equal quantities something common to both. The two
things must therefore be equal to a third, which in itself is neither
the one nor the other. Each o f them, so far as it is exchange value,
must therefore be reducible to this third.
(3) “ A simple geometrical illustration will make this clear. In
order to calculate and compare the areas o f rectilinear figures, we
decompose them into triangles. But the area o f the triangle itself
is expressed by something totally different from its visible figure,
namely by half the product o f the base into the altitude. In the same
way the exchange values o f commodities must be capable o f being
expressed in terms o f something common to them all, o f which
thing they represent a greater or less quantity.
(4) “ This common ‘something* cannot be either a geometrical,
a chemical, or any other natural property o f commodities. Such
properties claim our attention only in so far as they affect the utility
o f those commodities, make them use-values. But the exchange
o f commodities is evidently an act characterised by a total abstraction
from use-value. Then one use-value is just as good as another, pro­
vided only it be present in sufficient quantity. Or, as old Barbon says,
‘one sort o f wares are as good as another, i f their values be equal.
There is no difference or distinction in things o f equal value. . . .
An hundred pounds* worth o f lead or iron, is o f as great value as
one hundred pounds* worth of silver or gold.* As use-values,
commodities are, above all, o f different qualities, but as exchange
values they are merely different quantities, and consequently do
not contain an atom o f use-value.
(5) “ If then we leave out o f consideration the use-value o f
160 S T U D IE S IN TH E L A B O U R T H E O R Y OF V A L U B

commodities, they have only one common property left, that of

being products o f labour----
In the first three of these paragraphs, Marx is really laying down
the formal requirements o f a theory o f value. To begin with, he
insists in effect that although exchange value necessarily presents
itself in a purely relative form, it is not possible to arrive at an adequate
theory o f value unless one assumes that differences (or changes) in
relative values are the net resultant o f differences (or changes) in the
individual values o f one or more o f the commodities concerned,
each taken in isolation.2 Marx does not state this specifically: in his
deliberately “ popularised” account he contents himself with showing
by a simple illustration that the value-reladonships which commodities
bear to one another in exchange are capable o f expression in an
absolute as well as in a relative form.
Such an approach requires that some common quality inhering
in or attaching to commodities must be selected as constituting the
substance o f value. This quality, Marx suggests, must be something
which is capable of expression in quantitative terms, and which
although “ contained in” the commodity is nevertheless “ distinguish­
able from it” . Here, as Mr. Dobb has pointed out, Marx is merely
stating (again in “ popularised” form) one o f the familiar formal
requirements o f a theory o f value— that “ the determining constants
must express a relationship with some quantity which is not itself
a value” .8
In the fourth paragraph, Marx disposes o f the idea that the “ common
‘something* ” can be “ either a geometrical, a chemical, or any other
natural property o f commodities**. Such properties, Marx says, claim
our attention only in so far as they make the commodities use values;
but the exchange of commodities is characterised by “ a total abstrac­
tion from use-value**. This argument has often been misunderstood.
Bohm-Bawerk, for example, complained that Marx, having demon­
strated no more than that “ the special forms under which the values
in use o f the commodities may appear** were abstracted from in
exchange, went on to infer from this that use value as such was abs­
tracted from. What this in effect amounted to, said Bohm-Bawerk,

abstraction from the specific forms in which the genus manifests

itself**.4 But in actual fact Marx was not concerned at all, in this
1 Capitalf V o L I, pp. 3-4. 2 C f. above, p. 87.
2 Political Economy and Capitalism, p. 10.
4 B oh m -B aw erk , Karl M arx and the Close o f his System (Sw eezy’s edn.), p . 74.
 M A R X * S T H E O R Y OF V A L U E ( i i ) l6 l

particular place, with, what Bohm-Bawerk called the “ genus” —

i.e., use value as such: he was concerned only with “ the special forms
under which the values in use o f the commodities may appear” .
These forms, he argued, were “ abstracted from” in exchange in the
simple sense illustrated in the quotation from Barbon— namely
(as he put it in the Critique) that “ entirely apart from their natural
forms and without regard to the specific kind o f wants for which
they serve as use-values, commodities in certain quantities equal
each other, take each other’s place in exchange, pass as equivalents,
and in spite o f their variegated appearance, represent the same entity” .1
For this reason, Marx argued, the “ common ‘something* ** cannot
be a natural property such as weight, volume, etc.
In the fifth paragraph, Marx says in effect that if we leave out of
consideration such natural properties as these, commodities have in
fact only one common property left which fulfils the formal requirements
he has just been describing— the quality o f being the products o f labour.
That this is what Marx meant by this much-disputed statement is,
I think, reasonably clear from the context. Marx was hardly so stupid
as to fail to recognise that commodities possessed other “ common
properties** besides those o f weight, volume, etc., and o f being the
products o f labour. All commodities possessing exchange value, for
example, were obviously appropriated by private individuals, were the
products o f nature as well as o f labour, and were objects o f utility.
The question was, however, whether any o f these other “ common
properties’* were capable o f expression in quantitative terms and were
“ contained in” and yet “ distinguishable from” the commodity in the
sense described above. It appeared evident to Marx that none o f them
were in fact capable o f fulfilling these requirements, so that if weight,
volume, etc., were excluded the quality o f being the products o f labour
was the only relevant “ common property” left.
If Marx had been writing Capital twenty or thirty years later,
when the marginal utility theory was becoming fashionable, it is
possible that he would at this juncture have elaborated his reasons
for believing that the “ common property” which commodities
had of being objects o f utility was not in fact capable o f fulfilling
the
appropriately have emphasised in the context o f the particular argu­
ment we have been considering— first, that the utility o f a commodity
is not a directly measurable quantity, and second, that utility cannot
1 Critique, p. 21.
162 STU D IE S IN THE L A B O U R T H E O R Y OF V A L U E

possibly be regarded as an independent determining factor without

a quite illegitimate identification o f desire and satisfaction.1 As it
was, he simply accepted the Classical view, with which we are already
familiar, that the particular estimates o f the utility o f a commodity
made by the individuals who purchase it do not in fact determine
its long-period equilibrium price, as is sufficiently shown by the fact
that a change in the estimates made o f its utility by the purchasers
does not normally alter that price.2 Marx no doubt took it for granted
— perhaps over-optimistically— that the more learned readers o f the
“ popularised” sections would understand that this view was implied
in what he said.
Later in Part 1 Marx makes it clear that his logical abstraction from
utility at the beginning o f the book is a reflection, as it were, o f a
historical abstraction. Exchange value, in Marx’s view, is a historical
category, appropriate only to the particular period in which goods are
produced and exchanged as commodities. It is only when goods
come to be produced and exchanged as commodities, in other words,
that exchange value comes to develop a “ form o f its own” .8 When
products first begin to be exchanged they confront one another merely
as use values,4 and the ratios in which they are exchanged are up to a
point arbitrary and variable, since they largely depend upon the
subjective estimates o f the utility o f the products made by the parties
to the exchange. Eventually, however, as a result o f the repetition
and extension o f exchanges, the products are transformed into
commodities, whose use values become the “ material depositories”
o f a new quality— exchange value. And when this happens there is a
significant change in the manner in which ratios o f exchange are
determined. Marx describes the process as follows:
“ The first step made by an object o f utility towards acquiring
exchange-value is when it forms a non-use-value for its owner,
1 See o n this point M . H . D o b b , Political Economy and Capitalism, pp. 27-8 and 156 f f
2 A useful statement o f the Classical v ie w w as made b y R icard o in a letter to M althus
in w h ich he com m ented upon Say’s opinion that “ a com m odity is valuable in proportion
to its utility” . This w o u ld be true, R icard o says, “ i f buyers o n ly regulated the value o f
com m odities; then indeed w e m ig h t expect that all m en w o u ld be w illin g to give a price
fo r things in p roportion to the estimation in w h ich they held them , b u t the fact appears
to m e to be that the buyers have the least in the w orld to do in regulating price— it is
all done b y the com petition o f the sellers, and h ow ever the buyers m igh t be really w illin g
to g iv e m ore fo r iron, than for gold , th ey could not, because the supply w o u ld be regu­
lated b y the cost o f production, and therefore go ld w ou ld inevitably be in the proportion
w h ich it n o w is to iron, altho’ it probably is b y all m ankind considered as the less useful
metal** (Works, V ID , pp. 276-7).
8 Critiquef p. 53.
4 C f. H ilferding, Bohm-Bawerk’s Criticism o f M arx (Sw eezy’s edn.), p. 126.
 M A R x ’ s T H E O R Y OP V A L U E ( i i ) I63

and that happens when it forms a superfluous portion o f some

article
are external to man, and consequently alienable by him. In order
that this alienation may be reciprocal, it is only necessary for men,
by a tacit understanding, to treat each other as private owners o f
those alienable objects, and by implication as independent indivi­
duals. But such a state o f reciprocal independence has no existence
in a primitive society based on property in common, whether such
a society takes the form o f a patriarchal family, an ancient Indian
community, or a Peruvian Inca State. The exchange o f commodities,
therefore, first begins on the boundaries o f such communities,
at their points o f contact with other similar communities, or with
members o f the latter. So soon, however, as products once become
commodities in the external relations o f a community, they also,
by reaction, become so in its internal intercourse. The proportions
in which they are exchangeable are at first quite a matter o f chance.
What makes them exchangeable is the mutual desire o f their owners
to alienate them. Meantime the need for foreign objects o f utility
gradually establishes itself. The constant repetition o f exchange
makes it a normal social act. In the course o f time, therefore, some
proportion at least o f the products o f labour must be produced
with a special view to exchange. From that moment the distinction
becomes firmly established between the utility o f an object for the
purposes o f consumption, and its utility for the purposes o f exchange.
Its use-value becomes distinguished from its exchange-value. On
the other hand, the quantitative proportion in which the articles
are exchangeable, becomes dependent on their production itself.
Custom stamps them as values with definite magnitudes/’1
It is only when products are fully converted into commodities,
then, that they appear stamped as “ values with definite magnitudes” .
The task o f determining the exchange ratios o f the products is then
taken away from the parties to the exchange, who had formerly
fixed them on the basis o f their own subjective estimates o f their
utility, and handed over to the relations o f production, which hence­
forth fix them in abstraction from purchasers' estimates o f their utility.
“ The quantitative proportion in which the articles are exchange­
able” , as Marx puts it, “ becomes dependent on their production
itseifr1
Many critics of Marx, from Bohm-Bawerk onwards, have dis­
cussed the argument contained in the five paragraphs quoted above
as if it were (to quote a recent writer) “ Marx’s proof o f the labour
1 Capital, V ol. I, p. 60. C f. Critique, pp. 53 f f
 S T U D I E S IN T H E L A B O U R T H E O R Y OP V A L U E

theory o f value” .x They have then tried to show that the argument,

concluded by suggesting that Marx used it as a sort o f fa9ade to cover

a mere definition o f value which was purely arbitrary and dogmatic.
This type o f attack seems to me to be misconceived. It is true, o f course,
that Marx began with a particular concept o f value which he had
arrived at fairly early in his economic studies. Value was conceived
as embodied or crystallised labour. But this concept was very far
from being arbitrary or dogmatic. As we saw in the last chapter, it was
intimately associated with the particular hypothesis which Marx
set out to test in Capital— the materialist conception o f history.
If the basic relation between men as commodity-producers in fact
determined their exchange relations— i.e., the value-relations between
their products— it could only do so per medium o f the relative quanti­
ties o f labour which they bestowed on these products. The concept
o f value as embodied labour in effect expressed Marx’s view that the
economic process should be analysed in terms o f the social relations
between men and men in the production o f commodities. The concept
in itself could not o f course be “ proved” by a logical argument
o f the type used to prove a theorem in geometry.2 But the theory
o f value erected on the basis o f the concept naturally had to be proved.
First o f all, Marx believed, it was necessary to prove that a theory
o f value erected on the basis of this particular concept, and this parti­
cular concept alone, was capable o f fulfilling the formal requirements
o f a theory o f value. This was essentially what Marx set out to do
in the five paragraphs we have just been discussing. But this was
far from being the whole of “ Marx’s proof o f the labour theory o f
value” , as Bohm-Bawerk and his followers tended to assume. It
was also necessary to demonstrate that a theory o f value erected on
the basis o f this particular concept was in fact capable o f providing
a real solution o f the problems which were put before it. The really
important part o f “ Marx’s proof of the labour theory o f value” was
contained in the subsequent sections of Capital, in which Marx applied
the theory to the analysis o f economic reality, and in particular to the
problem o f distribution.
So far, in dealing with Marx’s concept o f value as embodied
1 Alexander Gray, The Development of Economic Doctrine, p. 310.
2 C f. Letters to Kugelmann, p. 73, w here M arx says that “ the nonsense about the necessity
o f p ro vin g the concept o f value arises from com plete ignorance b oth o f the subject
dealt w ith and o f the m ethod o f science” . B ut although the concept could not be “ proved**
in this sense, it was o f course necessary to analyse the real social relationships w hich under­
la y the concept.
 M A R X * S T H E O R Y OF V A L U B ( i l )

labour, we have ignored his important distinction between “ abstract

pivot on which a clear comprehension o f political economy turns” .1

Something must be said about this part o f his analysis before we
proceed further.
Use value can be considered “ objectively as utility o f the product” ,
or “ subjectively as usefulness o f the work” .2 When it is considered
“ subjectively” in this sense, the concept o f useful (or “ concrete” )
labour emerges. Useful labour, defined as “ productive activity o f a
definite kind and exercised with a definite aim” ,3 is the creator o f
use value, and is clearly “ a necessary condition, independent o f all
forms o f society, for the existence o f the human race” .4 But the
labour which finds expression in value, according to Marx, “ does not
possess the same characteristics that belong to it as a creator o f use-
values” .6 The labour which creates value (as distinct from use value)
is abstract labour— i.e., productive activity as such, from which all
differences between the various kinds o f activity have been abstracted.
Just as, when we are considering commodities as values, we abstract
from their different use values, “ so it is with the labour represented
by those values: we disregard the difference between its useful forms” .6
Labour, according to this view, “ possesses the same two-fold nature” 7
as the commodity which it produces.
This concept o f abstract labour, or labour in general, Marx pointed
out, is “ truly realized only as a category o f the most modem society” ,
where “ individuals pass with ease from one kind o f work to another,
which makes it immaterial to them what particular kind o f work
may fall to their share” .8 But the abstraction expresses a relation
which in fact dates back to the much earlier time when products
first began to be converted into commodities. That was the time when,
as Marx put it in the Critique, labour began to “ acquire its social
character from the fact that the labour o f the individual [took] on
the abstract form o f universal labour” .9 Marx’s point here is that
whereas labour necessarily assumes a social character from the moment
when men begin in any way to work for one another,10 the specificform
in which this social character manifests itself differs from epoch to

1 Capital, Vol. I, p. 8. 2 Selected Correspondence, p. 106.

3 Capital, Vol. I, p. 9. 4 Ibid., Vol. I, p. 10. 6 Ibid., Vol. I, p. 8.
6 Ibid., Vol. I, p. 12. 7 Ibid., Vol. I, p. 8 .
8 Critique, p. 299. C £ Capital, Vol. I, p. 29.
9 Critique, p. 29. 10 Capital, Vol. I, p. 42.
166 STU D IES IN THE L A B O U R T H E O R Y OF V A L U E

“ when spinner and weaver lived under tie same roof, when die

members did the weaving to supply the wants o f their own family [,]
then yam and linen were social products, spinning and weaving
were social labour within the limits o f the family. But their social
character did not manifest itself in the fact that yam, as a universal
equivalent, could be exchanged for linen as a universal equivalent,
or that one was exchanged for the other, as identical and equivalent
expressions o f the same universal labour-time. It was rather the
family organization with its natural division o f labour that impressed
its peculiar social stamp on the product o f labour/*1
But when commodity production began, the social character o f
labour began to manifest itself in quite a different form. “ When
exchange has acquired such an extension that useful articles are pro­
duced for the purpose of being exchanged” , wrote Marx,
“ and their character as values has therefore to be taken into account,
beforehand, during producdon[,] . . . the labour o f the individual
producer acquires socially a two-fold character. On the one hand,
it must, as a definite useful kind o f labour, satisfy a definite social
want, and thus hold its place as part and parcel o f the collective
labour o f all, as a branch o f a social division o f labour that has
sprung up spontaneously. On the other hand, it can satisfy the
manifold wants o f the individual producer himself, only in so far
as the mutual exchangeability o f all kinds o f useftd private labour is
an established social fact, and therefore the private useful labour
o f each producer ranks on an equality with that o f all others. The
equalisation o f the most different kinds o f labour can be the result
only o f an abstraction from their inequalities, or o f reducing them
to their common denominator, viz., expenditure o f human labour
power or human labour in the abstract.” 2
In a commodity-producing society, then, and in a commodity-
producing society alone, the social character o f each producer’s labour
manifests itself in the fact that this labour “ ranks on an equality
with that o f all others”— i.e., is reduced to abstract labour. And
“ the social character that his particular labour has o f being the equal
o f all other particular kinds o f labour, takes the form that all the
physically different articles that are the products o f labour, have one
common quality, viz., that o f having value.” 3 Thus it is in their
capacity as the products o f abstract labour, according to Marx’s view,
1 Critique, pp. 28-9. C f. Capital, V o l. I, pp. 47-50.
2 Capital, V o l. I, p. 44. 8 Ibid., V o L I, p. 45.
 M A R x ’ s T H E O R Y OF V A L U E ( i l ) 16 7

that commodities most distinctly “ bear . . . marks o f the relations

o f social production” 1 peculiar to commodity-producing societies.
The property o f being die product o f abstract labour is the property
which above all reveals a commodity as the bearer o f these relations
o f production.2

2. T h e Refinement and Development o f the Concept

The concept o f value which emerges from the analysis described
in the preceding section requires a certain amount o f refinement
and development before it can become capable o f serving as the
basis for an adequate theory o f value. In accordance with the concept,
all commodities, in so far as they represent values, are visualised as
“ crystals” o f a certain “ social substance” 3— human labour in the
abstract; and the magnitude o f the value possessed by each commodity
is regarded as being most appropriately measured by the quantity
o f this value-creating substance embodied in it— i.e., by the amount
o f labour time taken to produce it. But i f we approach the value
problem in this manner, we immediately come face to face with the
obvious objection that if values were in fact determined and measured
in this way, “ the more idle and unskilful the labourer, the more
valuable would his commodity be, because more time would be
required in its production” .4 To argue thus, however, Marx answers,
would be to misunderstand the nature o f that abstract labour which
constitutes the substance o f value. “ The labour . . . that forms the
substance o f value” , he writes,
“ is homogeneous human labour, expenditure o f one uniform
labour-power. The total labour-power o f society, which is embodied
in the sum total o f the values o f all commodities produced by that
society, counts here as one homogeneous mass o f human labour-
power, composed though it be o f innumerable individualunits.
Each o f these units isthe same as any other, so far as it has the
character o f the average labour-power o f society, and takes effect
as such; that is, so far as it requires for producing a commodity,
no more time than is needed on an average, no more than is socially
necessary. The labour-time socially necessary is that required to
produce an article under the normal conditions o f production,
and with the average degree o f skill and intensity prevalent at the
time. The introduction o f power looms into England probably
reduced by one half the labour required to weave a given quantity
1 Critique, p. 20. 2C f. Selected Works, V o l. I, p. 305.
8 Capital, V o L I, p. 5. 4 Ibid.
i6 8 STU D IES IN THE L A B O U R T H E O R Y OF V A L U E

o f yam into cloth. The hand-loom weavers, as a matter o f fact,

continued to require the same time as before; but for all that,
the product o f one hour o f their labour represented after the change
only half an hour’s social labour, and consequently fell to one-half
its former value.” 1
This “ averaging” process, Marx’s argument implies, takes place
in history before it takes place in the minds o f economists. It is simply
an aspect o f that general historical process whereby, as the system
o f commodity production develops, each individual’s labour is reduced
to abstract labour. It need hardly be added that the “ normal conditions
o f production” referred to here by Marx are exclusively technical
conditions, and that it is quite legitimate, in the present context, to
regard these conditions as being essentially independent of the values
o f the commodities concerned.2
But another and rather more serious difficulty now arises— the
famous problem o f “ the reduction o f skilled to unskilled labour” .
Marx instructs us to measure the quantity o f socially-necessary labour
required to produce a given commodity in terms o f labour possessing
“ the average degree o f skill . . . prevalent at the time” in the industry
producing the commodity. But i f we wish to use the Marxian concept
o f value as the basis for a theory which will explain differences (or
changes) in the relative equilibrium prices o f two or more different
commodities, something more than this is evidently required. It
has to be recognised that the “ average degree o f skill” prevalent
in one industry at a given time may differ from that prevalent in
another; and that the equilibrium prices o f commodities produced
by relatively skilled labour are generally higher, in relation to the
number o f hours o f labour time expended in their production, than
those o f commodities produced by relatively unskilled labour. The
values o f commodities, therefore, can be said to be determined by the
quantity o f labour required on the average to produce them only
if proper account is taken o f the different degrees o f labour skill
which are required (on the average) in the case o f the different com­
modities. The most convenient method o f overcoming this difficulty
would o f course be to “ reduce” skilled labour to unskilled (or “ simple”)
labour, expressing the values o f all commodities in terms o f the latter.
But we cannot legitimately do this unless we also provide a statement
1 Capital, V o l. I, pp. 5-6.
2 I m ention this point m erely because some critics have suggested that M arx, b y
introducing the “ norm al conditions o f production” into his definition o f socially-neces­
sary labour, in effect reduced his argum ent to circularity.
 M A R x ’ s T H E O R Y OF V A L U E ( i i ) 169
o f the laws according to which this reduction is effected. And these

to the wages which the skilled and unskilled workers actually receive,
or to the ratios at which their products actually exchange on the
market. Otherwise we should merely be doing what Marx once
described (in another context) as “ moving in a vicious circle, . . .
determining] relative value by a relative value which itself needs
to be determined” .1
In chapter 1 o f Capital, Marx does not attempt to resolve this
particular difficulty. All he is concerned to do at this early stage in
his argument is to demonstrate that the reduction o f skilled to un­
skilled labour does in fact take place in the real world, and that this
reduction is essentially an aspect o f the general process whereby
individual labours are reduced to abstract labour. “ The value o f a
commodity” , he says in an oft-quoted passage,
“ represents human labour in the abstract, the expenditure o f human
labour in general. And just as in society, a general or a banker
plays a great part, but mere man, on the other hand, a very shabby
part, so here with mere human labour. It is the expenditure o f simple
labour-power, i.e., o f the labour-power which, on an average,
apart from any special development, exists in the organism o f every
ordinary individual. Simple average labour, it is true, varies in
character in different countries and at different times, but in a
articular society it is given. Skilled labour counts only as simple
E ibour intensified, or rather, as multiplied simple labour, a given
quantity o f skilled being considered equal to a greater quantity o f
simple labour. Experience shows that this reduction is constandy
being made. A commodity may be the product o f the most skilled
labour, but its value, by equating it to the product o f simple un­
skilled labour, represents a definite quantity o f the latter labour
alone.2 The different proportions in which different sorts o f labour
are reduced to unskilled labour as their standard, are established by a
social process that goes on behind the backs of the producers,
and, consequendy, appear to be fixed by custom. For simplicity’s
sake we shall henceforth account every kind o f labour to be un­
skilled, simple labour; by this we do no more than save ourselves
the trouble o f m aking the reduction.” 3
1 Poverty o f Philosophy, p. 48.
2 A n im portant footnote here reads as follow s: “ T h e reader must note that w e are not
speaking bere o f the wages or value that the labourer gets fo r a given labour tim e, but
o f the value o f the com m odity in w h ich that labour tim e is materialised. W ag es is a
category that, as yet, has no existence at the present stage o f our investigation/*
8 Capital, V o l. I, pp. 11-12 .
 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

What Marx is saying here is reasonably clear, and it is difficult to

understand why the passage should have been so persistently mis-
interpreted. All that he says is that in the real world the proportions
in which different kinds o f skilled labour are reduced to unskilled
labour are established by a social process o f whose character the
producers themselves are generally unaware1— which is surely a
fairly evident fact. The question o f the actual laws according to which
the reduction is made is deliberately left over until later, the most
appropriate point to introduce it being, in Marx's opinion, that
at which the question o f wages, or the value o f labour power, comes
up for consideration. If this were not clear from the quoted passage
itself, it should certainly be clear from (a) Engels's statement in Anti-
Duhring to the effect that “ at this point, in die development o f the
fheory o f value’* the process by which skilled labour is reduced to
unskilled “ has only to be stated but not as yet explained” ;2 (b) Marx's
statement in the corresponding passage in the Critique that “ this is not
the place to consider the laws regulating this reduction” ;8 and (c) the
fact that Marx actually does consider these laws later on in Capital.
The matter is reintroduced in the chapter on “ The Buying and
Selling o f Labour-Power” in Part II o f Capital. “ In order to modify
the human organism” , Marx there says,
“ so that it may acquire skill and handiness in a given branch o f
industry, and become labour-power o f a special kind, a special
education or training is requisite, and this, on its part, costs an
equivalent in commodities o f a greater or less amount. This amount
varies according to the more or less complicated character o f the
labour-power. The expenses o f this education (excessively small
in the case o f ordinary fabour-^ower), enter pro tanto into the total
value spent in its production. ’4
Here, then, Marx makes it clear that training costs are a constituent
element in the value o f labour power. And in the following chapter
he explains that labour power which has had these training costs
expended upon it is not only itself o f a higher value but also creates
proportionally higher values than unskilled labour power. “ In the
creation o f surplus-value” , he writes,
1 Sm ith, it w ill be rem em bered, emphasised that the necessary adjustm ent is made
“ b y the h igglin g and bargaining o f the m arket, according to that sort o f rou gh equality
w hich , though not exact, is sufficient fo r carrying on the business o f com m on life"
{Wealth o f Nations, V o l. I, p. 33). C f. R icard o, Works, V oL I, pp. 20-22.
2 Anti-Duhring, p. 222. 3Critique, p. 25.
* Capital, V o L I, pp. 150-1.
 M A R X ’ s T H E O R Y OF V A L U E ( i i )

“ it does not in the least matter, whether the labour appropriated

by the capitalist be simple unskilled labour o f average quality or
more complicated skilled labour. All labour o f a higher or more
complicated character than average labour is expenditure o f labour-
power o f a more costly kind, labour-power whose production
has cost more time and labour, and which therefore has a higher
value, than unskilled or simple labour-power. This power being
o f higher value, its consumption is labour o f a higher class, labour
that creates in equal times proportionally higher values than un­
skilled labour does. Whatever difference in skill there may be
between the labour o f a spinner and that o f a jeweller, the portion
o f his labour by which the jeweller merely replaces the value of
his own labour-power, does not in any way differ in quality from the
additional portion by which he creates surplus-value. In the making
o f jewellery, just as in spinning, the surplus-value results only from
a quantitative excess of labour, from a lengthening-out o f one and
the same labour-process, in the one case, o f the process of making
jewels, in the other o f the process o f making yam.1
“ But on the other hand, in every process o f creating value, the
reduction o f skilled labour to average social labour, e.g., one day
o f skilled to six days o f unskilled labour, is unavoidable. W e there­
fore save ourselves a superfluous operation, and simplify our analysis,
by the assumption, that the labour o f the workman employed by
the capitalist is unskilled average labour.” 2
To Marx, then, the problem o f the reduction of skilled to unskilled
labour did not seem a particularly important one, partly because the
distinction between skilled and unskilled labour was to some extent
illusory, partly because the number of skilled labourers in his time
was relatively small, but more especially because the solution o f the
problem appeared to him to be so evident. Skilled labour power
“ being o f higher value” (because its production “ has cost more time
1 H ere there is the fo llo w in g footn ote: “ T h e distinction betw een skilled and unskilled
labour rests in part on pure illusion, or, to say the least, on distinctions that have long
since ceased to be real, and that survive o n ly b y virtue o f a traditional convention; in part
on the helpless condition o f som e groups o f the w orking-class, a condition that prevents
them from exacting equally w ith the rest the value o f their labour-power. A ccidental
circumstances here play so great a part, that these tw o form s o f labour sometimes change
places. W h ere, for instance, the physique o f the w orking-class has deteriorated, and is,
relatively speaking, exhausted, w h ich is the case in all countries w ith a w ell developed
capitalist production, the lo w er form s o f labour, w h ich dem and great expenditure o f
muscle, are in general considered as skilled, com pared w ith m uch m ore delicate form s
o f labour; the latter sink dow n to the level o f unskilled labour.”
2 Capital, V o l. I, pp. 179-Bo. C f. ibid., V o l. I, pp. 342-3, and V o l. Ill, p. 168. It should
be carefully borne in mind that the main question w hich M arx is discussing in the quoted
passage is h o w the em ployer o f skilled labour manages to extract surplus value from his
em ployees notwithstanding the fact that their labour is o f a higher value, and therefore
usually m ore h igh ly paid, than unskilled labour.
 172 STU D IE S IN THB L A B O U R T H E O R Y O P V A L U E

and labour”), “ its consumption is labour o f a higher class, labour that

labour does” . This key sentence was misinterpreted (somewhat

wilfully, one cannot help feeling) by Bernstein, w ho argued that Marx
was here deducing the higher value o f the product o f skilled labour
from the higher wage paid to that labour.1 But it is surely clear from
the context that Marx was in fact doing nothing o f the sort. He was
simply saying (a) that the value o f the skilled labour power was higher
because it had cost more labour to produce; and (b) that because it
had cost more labour to produce, it was able to create a product o f a
higher value. Marx evidendy regarded the labour expended on train­
ing the skilled labourer as being stored up, as it were, in his person,
to be manifested when he actually begins to w ork. The expenditure
o f skilled labour, therefore, as Hilferding puts it, “ signifies the ex­
penditure o f all the different unskilled labours which are simultaneously
condensed therein” .2
On the assumption that differences in skill are due entirely to
differences in training costs, there is litde difficulty (at least in theory)
in reducing skilled to unskilled labour. One m ay simply calculate
the amount o f simple labour (including his own) which was expended
in training the labourer, and then average this out over the whole
o f his expected productive life. If p hours is his expected productive
life, and t hours o f simple labour have been expended upon him and
by him during the training period, then when he starts work each
hour of his labour will count (for the purpose o f estimating the value
o f the commodity he produces) as i+ -~ hours o f simple labour.3 The
case where differences in the “ average aegree o f skill” are due entirely
to differences in natural ability, or to a combination o f natural ability
and training costs, however, is a little more difficult. Marx did not deal
specifically with .this case, possibly because he felt, as Adam Smith
had done, that “ the difference o f natural talents in different men is,
in reality, much less than we are aware o f” .4 O r possibly he assumed
1 See H ilferding, op. cit.t pp. 141 f f T h e controversy o v e r B ernstein's statement w as
com plicated b y an incautious statement o f H ilferding *s to the e ffe c t that i f Bernstein had
been correct in his interpretation M a rx w o u ld have used the w o r d “ daher” instead o f
**aber” at a crucial point in the key sentence. U nfortun ately, in th e fou rth G erm an edition

in this connection) Engels did in fact substitute ‘ ‘daher’ ’ fo r “ afeer” . T h e w h o le episode

constitutes an am using com edy o f errors— even m ore so w h e n i t is appreciated that the
real m eaning o f the sentence is in fact the sam e w hich ever o f th e tw o w ords is used.
2 H ilferding, op. cit., p. 145.
3 C £ S w eezy, Theory o f Capitalist Development, p. 43.
4 Wealth o f Nations, V o L I, p. 17.
 M A R X ’ s T H E O R Y OP V A L U E ( i l ) 173

that the average level o f natural ability was roughly the same in each
industry, so that differences in the “ average degree o f skill” between
one industry and another could be safely regarded as being due more
or less exclusively to differences in training costs. This would probably
be a reasonable enough assumption in the case o f the great majority
o f industries, since there are relatively few “ specialist” industries
to which men o f unusual natural ability are particularly attracted.
If one were anxious to leave no loose ends whatever, I see no reason
in principle why “ specialist” industries o f this type should not be
grouped together and dealt with in terms o f the sort o f analysis which
Marx (and Ricardo) reserved for agriculture. The labour theory
could then be regarded as applying only at the margin in the case o f
industries normally employing persons o f unusual and highly special­
ised natural ability. But it must be emphasised that such refinements
are not really necessary in order to give the labour theory the requisite
degree o f generality.
The discussion outlined above “ started from exchange value, or
the exchange relation o f commodities, in order to get at the value
that lies hidden behind it” . Having isolated and examined this “ value” ,
Marx now returns to the “ form under which value first appeared to
us” , and subjects it to a searching analysis. The task which he sets
himself in this part o f his work is well described in the following
paragraph:

“ Every one knows, if he knows nothing else, that commodities

have a value form common to them all, and presenting a marked
contrast with the varied bodily forms o f their use-values. I mean
their money form. Here, however, a task is set us, the performance
o f which has never yet even been attempted by bourgeois economy,
the task o f tracing the genesis o f this money form, o f developing
the expression of value implied in the value relation o f commodities,
from its simplest, almost imperceptible outline, to the dazzling
money form. By doing this we shall, at the same time, solve the
riddle presented by money.” 1
There is no need for us to follow Marx*s rather complex analysis
o f the “ elementary” , “ expanded” and “ money” forms of value in
any detail. Essentially, what he is trying to do here is to reveal
the contradictions which result from the reciprocal interaction o f the
two sides o f the value equation, and to demonstrate the nature o f the
solutions o f these contradictions which logic— and history-—demand
1 Capital, V o L I, p. 15.
174 STU D IE S IN THE L A B O U R T H E O R Y OF V A L U E

and provide. The contradictions, as Engels said, “ are not merely

o f abstract theoretical interest, but . . . at the same time . . . reflect
the difficulties which emerge from the nature o f the immediate
exchange relations, o f simple barter, reflect the impossibilities in which
this first crude form o f exchange necessarily terminates. The solution
to these impossibilities is to be found in the fact that the property o f
representing the exchange value o f all other commodities is transferred
to a special commodity— money
Marx’s interesting discussion o f “ the fetishism o f commodities
and the secret thereof” , with which chapter i concludes, makes
explicit a number o f the attitudes which underlie the argument o f the
preceding sections. Marx’s thesis, briefly, is that many current errors
and confusions over the problem o f value— and therefore over the
problems o f political economy in general— are due to the fact that in
commodity-producing societies the basic socio-economic relation
between men appears disguised, as it were, as a relation between things.
“ As a general rule” , Marx writes,
“ articles o f utility become commodities, only because they are
products o f the labour o f private individuals or groups o f individuals
who carry on their work independently o f each other. The sum
total o f the labour o f all these private individuals forms the aggregate
labour o f society. Since the producers do not come into social
contact with each other until they exchange their products, the
specific social character o f each producer’s labour does not show
itself except in the act o f exchange. In other words, the labour o f
the individual asserts itself as a part o f the labour o f society, only
by means o f the relations which the act o f exchange establishes
directly between the products, and indirectly, through them,
between the producers. To the latter, therefore, the relations
connecting the labour o f one individual with that o f the rest appear,
not as direct social relations between individuals at work, but as
what they really are, material relations between persons and social
relations between things.” *
In other words, as Marx put it in the Critique, “ the relation o f persons
in their work appears in the form o f a mutual relation between things,
and between things and persons” .8 Just as in the religious world
“ the productions o f the human brain appear as independent beings
endowed with life, and entering into relation both with one another
and the human race” , so it is in the world o f commodities with the
1 Ludwig Feuerbach, pp. io o - io i. 2 Capital, V oL I, pp. 43-4.
2 Critique, pp. 30-1.
 M A R X ’ s T H E O R Y OF V A L U E ( i l ) 175
products o f men’s hands. “ This” , says Marx, “ I call the Fetishism
which attaches itself to the products o f labour, so soon as they are
produced as commodities, and which is therefore inseparable from
the production o f commodities.” 1
The categories o f bourgeois political economy, Marx argues, are
“ forms o f thought expressing with social validity the conditions
and relations o f a definite, historically determined mode o f production,
viz., the production o f commodities” . Therefore, he says, “ the whole
mystery o f commodities, all the magic and necromancy that surrounds
the products o f labour as long as they take the form o f commodities,
vanishes . . . so soon as we come to other forms o f production” .
Marx reviews in turn the situation o f Robinson Crusoe on his island;
the European middle ages, with their social relations o f production
characterised by personal dependence; the patriarchal industries o f a
peasant family which produces articles for home use; and finally
“ a community o f free individuals, carrying on their work with the
means o f production in common” — a community in which “ the
labour-power o f all the different individuals is consciously applied
as the combined labour-power o f the community” . He demonstrates
that in all these cases “ the social relations o f the individual producers,
with regard both to their labour and to its products, are . . . perfecdy
simple and intelligible” . There is no possibility o f the real social
relations between the producers being “ disguised under the shape
o f social relations between the products o f labour” . It is only under
the system o f commodity production— and even there only in the
later stages o f its development— that the “ mystification” becomes
really serious.8
As the use o f money increases, and more and more articles become
commodities, the mystification is heightened, reaching its maximum
under capitalism. To the producers o f commodities, Marx argues,
“ their own social action takes the form o f the action of objects, which
rule the producers instead o f being ruled by them” .8 And this has an
important effect upon bourgeois political economy, which, according
to Marx, although it “ has indeed analysed, however incompletely,
value and its magnitude, and has discovered what lies beneath these
forms” , has never asked why “ labour is represented by the value o f
its product and labour time by the magnitude o f that value” . Its
formulae, Marx says,

1 Capital, Vol. I, p. 43. * Quotations from ibid., Vol. I, pp. 47-50.

8 Ibid., Vol. I, p. 46.
 S T U D I E S IN TH E L A B O U R T H E O R Y OP V A L U E

“ which bear stamped upon them in unmistakeable letters, that they

belong to a state o f society, in which the process o f production
has the mastery over man, instead o f being controlled by him,
such formulae appear to the bourgeois intellect to be as much a
self-evident necessity imposed by nature as productive labour
itself.” 1

It is true, Marx agrees, that political economy has now outgrown

the illusions o f the monetary system. But, he asks, “ does not its
superstition come out as clear as noon-day, whenever it treats o f
capital?” 2 And in an amusing passage in Volume III o f Capital, dis­
cussing what he calls the “ trinitarian formula” o f modern political
economy in which land, labour and capital are assumed to “ pro­
duce” the income which accrues to their owners, he says that in this
formula

“ we have the complete mystification o f the capitalist mode o f pro­

duction, the transformation o f social conditions into things, the
indiscriminate amalgamation o f the material conditions of produc­
tion with their historical and social forms. It is an enchanted, per­
verted, topsy-turvy world, in which Mister Capital and Mistress
Land carry on their goblin tricks as social characters and at the same
time as mere things.” 3

In other words the mystification which surrounds commodity pro­

duction as such necessarily also surrounds the specific forms of commo­
dity production— in particular the capitalist form. “ The life-process
of society” , Marx asserts,

“which is based on the process o f material production, does not

strip off its mystical veil until it is treated as production by freely
associated men, and is consciously regulated by them in accordance
with a settled plan.” 4
1 Capital, V o L I, pp. 52-3. C f. ibid., p. 65. 2 Ibid., V o l. I, p. 54.
* Ibid., V o L HI, p. 966. M a rx goes on to say: “ It is the great m erit o f classic eco n o m y
to have dissolved this false appearance and illusion, this self-isolation and ossification
o f the different social elements o f w ealth b y themselves, this personification o f things
and conversion o f conditions o f production into entities, this religion o f everyd ay life.
It did so b y reducing interest to a portion o f profit, and rent to the surplus above the aver-
age profit, so that b o th o f them m eet in surplus-value. It represented the process o f circu­
lation as a m ere m etam orphosis o f form s, and finally reduced value and surplus-value
o f com m odities to labour in the actual process o f production. Nevertheless even the best
spokesmen o f classic eco n o m y remained m ore or less the prisoners o f the w orld o f illusion
which th ey had dissolved critically, and this could not w ell be otherw ise from a bourgeois
point o f view.**
* Ibid., V o l. 1, p. 51.
 M A R X ’ s T H E O R Y OF V A L U E ( i l ) 17 7

The Application o f the Concept

the value o f a coi
and place as the amount o f socially-necessary simple labour required
to produce it (or, rather, to reproduce it)1 at that time and place, and
proceeded in Volume I o f Capital on the assumption that commodities
did in fact tend to sell “ at their values”— i.e., that the long-run equili­
brium prices o f freely reproducible commodities tended under reason­
ably competitive conditions to be proportionate to the quantities of
socially-necessary simple labour required to produce them.2
It is important to note at the outset that Marx’s theory o f value,
like those o f Smith and Ricardo, did not pretend to explain any prices
other than those at which “ supply and demand equilibrate each other,
and therefore cease to act” .3 The prices in which Marx was primarily
interested were those which manifested themselves at the point where
supply and demand “ balanced” or “ equilibrated” one another.
The very fact that the forces o f supply and demand did actually
“ balance” at this point was taken by Marx as an indication that the
level o f the equilibrium price could not be adequately explained
merely in terms o f the interaction o f these forces.4 The relation o f
supply and demand could certainly explain deviations from the equili­
brium price, but it could not explain the level o f the equilibrium
price itself. It was in fact precisely through fluctuations in “ supply
and demand” that the law o f value operated to determine the equili­
brium price.6
Prices, then, might diverge from values in cases where supply and
demand did not “ balance” . And not only was the price-form “ com­
patible with the possibility o f a quantitative incongruity between
magnitude o f value and price” , but it might also “ conceal a qualita­
tive inconsistency, so much so, that . . . price ceases altogether to
express value” . In other words, “ an object may have a price without
having value” .6 This was particularly important, o f course, in the
case o f land and natural objects. The mystery o f the origin o f “ the
exchange value o f mere forces o f nature” 7 would ultimately have to
1 Capital, V o l. Ill, p. 166; Critique, p. 26.
2 W ith M arx, as w ith R icard o, the quantity o f labour required to produce a com m odity
was taken to include not o n ly the present labour, but also the past labour required to
produce the capital goods and raw materials used up in production.
8 Selected Works, V o l. I, p. 301. C f. ibid., pp. 310 -11.
4 C f. Capital, V o l. HI, p. 223.
6 C f. Selected Works, p. 261; Capital, V o l. I, pp. 46 and 74-5; and Capital, V o l. HI,
pp. 224 ff.
8 Capital, V o l. I, p. 75. 7 Critique, p. 73.
178 S T U D IE S IN THE LABOUR T H E O R Y O F V A L U E

be solved, o f course (per medium o f the theory o f rent), but in a

put it, “ landed property is taken as ^ o ” .1

Just as Marx’s concept o f value involved an abstraction from
utility (in the sense indicated above), so the theory o f the determination
o f equilibrium price based upon it involved a similar abstraction
from demand. In common with his Classical predecessors, Marx
assumed that changes in demand would not in themselves (on the
supposition of constant returns to scale for the industry as a whole)
bring about changes in the long-run equilibrium prices o f the com­
modities concerned.2 But this is not at all to say that Marx ignored
demand. It remained true, as he emphasised, (a) that a commodity
had to be in demand before it could possess exchange value; (b)
that changes in demand might cause the actual market price o f a
commodity to deviate from its equilibrium price; (c) that price under
conditions o f monopoly was “ determined only b y the eagerness of
the purchasers to buy and by their solvency” ;3 and (d) that demand
was the main force determining the proportion o f the social labour
force allocated to any given productive sector at any given time.
This last point was one o f particular importance. If a diminution
in the demand for, say, linen, brought about a situation in which
the total quantity o f labour actually allocated to the linen industry
was greater than the total quantity which society required to be
allocated there under the existing technical conditions, then the effect
upon the price o f linen, according to Marx, would be the same “ as
if each individual weaver had expended more labour-time upon his
particular product than is socially necessary” .4 Some critics have
suggested that Marx, in making this statement, is in effect admitting
that the quantity o f socially-necessary labour required to produce a
yard o f linen is partly dependent upon demand conditions. But
Marx does not say that the change in demand w ill cause a change in
the quantity o f socially-necessary labour: he says only that the effect
o f the change in demand upon the price o f linen w ill be the same as if
each weaver had expended more than the quantity o f socially-necessary
labour on his product, which is of course something very different.

1 Selected Correspondence, p. 106.1 do not deal directly w ith the M a rx ia n th eory o f rent,
o r w ith any other aspects o f M arx’s theory o f the distribution o f surplus value am ong
the property-ow ning classes, in the present w ork.
2 See, e.g., Selected Works, Vol. I, pp. 289-90.
3 Capital, V o L III, p. 900.
* Capital, V o L I, p. 80. C f. ibid., V o L III, pp. 226-7.
 M A R x ’ s T H E O R Y OF V A L U E ( i i ) 179

All he is doing, in fact, is to make it clear that one o f the conditions

is that the total quantity o f labour allocated to the linen industry (and there­
fore the total supply o f linen) should be just sufficient to satisfy the
aggregate demand. In other words, supply must be equal to demand—
which in Marx’s view is just another way o f saying that use value
is a prerequisite o f exchange value not only in the case o f each indivi­
dual commodity, but also in the case of the whole mass o f commodities.
“ Every commodity” , writes Marx in Volume III o f Capital,
“ must contain the necessary quantity o f labour, and at the same time
only the proportional quantity o f the total social labour time
must have been spent on the various groups. For the use-value o f
things remains a prerequisite. The use-value o f the individual
commodities depends on the particular need which each satisfies.
But the use-value o f the social mass o f products depends on the extent
to which it satisfies in quantity a definite social need for every
particular kind o f product in an adequate manner, so that the
labour is proportionately distributed among the different spheres
in keeping with these social needs, which are definite in quantity.. . .
The social need, that is the use-value on a social scale, appears here
as a determining factor for the amount o f social labour which
is to be supplied by the various particular spheres. But it is only
the same law, which showed itself in the individual commodity,
namely that its use-value is the basis o f its exchange-value and thus
o f its surplus-value.” 1
The quantity o f sodally-necessary labour required to produce a unit
o f any commodity, then, was by no means dependent upon demand
conditions. Demand certainly determined the total quantity o f labour
to be allocated to the industry producing any commodity under
given conditions o f labour productivity, but it was this productivity,
and not the demand, which determined the value o f a unit o f the
commodity. And Marx often argued, in addition, that demand was
by no means autonomous, but largely dependent upon the distri­
bution o f income2 and the actions o f the producers themselves3—
this being another reason why any theory o f value which started
from the demand side was necessarily doomed to failure.
When Marx embarked upon his preliminary (Volume I) analysis
o f the laws governing the production o f surplus value under capital­
ism, then, he proceeded on the assumption that commodities tended
1 Capital, V o l III, p. 745. * Ibid., V o l. m , pp. 214 and 222-3.
8 Critique, p. 280.
l8o ST U D I E S I N T H B L A B O U R T H E O R Y OF V A L U E

to sell “ at their values” in the sense defined above. N ow it can easily

be shown that under developed capitalism, once an average rate o f
profit has been established to which all individual rates tend more
or less automatically to conform, exchange ratios will not in fact
tend to be equal to embodied labour ratios unless the capitals concerned
are similarly constituted— i.e., in Marx’s terminology, unless their
organic compositions1 are equal.2 If we assume that commodities
tend to sell “ at their values’ the Marxian sense) under developed
capitalism, then, we implicidy assume either that organic compositions
are equal or that rates o f profit are unequal. But the actual tendencies
under capitalism are towards the inequality o f organic compositions
and die equality o f rates o f profit rather than the reverse. W hy, then,
did Marx conduct his preliminary analysis o f surplus value on the
assumption that commodifies tended to sell “ at their values” ?
The reasons underlying Marx’s procedure here should become
fairly clear if we remember what was said above regarding his general
economic method and the plan o f Capital Marx begins with an
analysis o f the commodity as such, and then goes on to consider “ its
ideologically and historically secondary form, a capitalistically
modified commodity” .8 His main task is to enquire into the modifica­
tions which take place in the general laws o f commodity production
and exchange when the capitalist system o f commodity production
replaces the earlier systems. In order to reveal the essence o f these
modifications, Marx seems to have believed, it is useful to assume that
capitalism impinges on a system o f “ simple” commodity production
in which the normal exchange is one o f “ value” for “ value” , and that
in the early stages o f the conversion o f this “ simple” commodity
production into capitalist commodity production all commodifies
1 The organic com p osition o f capital is represented b y the rad o •£, w here c (“ constant**
capital) is the amount spent o n m achinery and buildings (in so far as th ey are used up in
p ro d u ction ) plus raw m aterials, and v (“ variable** capital) is the am ount spent on labour
p o w e r.
2 T h e argum ent u pon w h ic h this conclusion is based is discussed in every b o o k o n
M a rx ia n political e c o n o m y , an d need therefore o n ly be b riefly summarised here. I f
com m odities are to sell “ a t th eir values**, th ey must sell at prices w h ich are sufficient to
c o v e r depredation and r a w m aterials (c), w ages (v), and surplus value (s). This surplus
value, w h ic h according t o the M arxian account is the o n ly possible source o f profit, is
created en tirely b y the lab ou rers em ployed b y v%and it must be assumed that the am ount
o f it created b y the a verage lab o u rer is the same in all spheres o f production. N o w
under develop ed capitalism the rate o f profit must also b e the same in all spheres o f
p roduction . B u t it is o b v io u s th at b oth these equalities cannot prevail at the same tim e
unless w e postulate a third— v iz ., that the organic com position o f capital (|) is also the
sam e in all spheres o f p ro d u ctio n .
* Capital, Vol. HI, p. 24.
 M A R X *S T H E O R Y OF V A L U B ( i l ) 181

continue for some time to exchange “ at their values” . The capitalists

to the subsistence level and appropriate surplus value; their competition

within each sphere tends to establish a single price for the commodity
produced in that sphere; but there is as yet no competition between
the capitalists in different spheres and therefore no average rate o f
profit. Thus differences in the organic compositions o f capital as
between the spheres will be associated with differences in rates o f
profit rather than with divergences between exchange ratios and
embodied labour ratios. In such a state o f affairs, the phenomenon
o f the creation and appropriation o f surplus value appears, as it were,
in its “ pure” form, free from the pall o f obscurity which the subsequent
formation o f an average rate o f profit tends to spread over it. This
state o f affairs, then, which can reasonably be assumed to have been
the historical starting-point,1 must be the logical starting-point as well.*
But capitalism, having once found a foothold, soon proceeds to
modify the way in which the law o f value operates. The extension
and intensification o f capitalist competition leads to the formation
o f an average rate o f profit, which means that equilibrium exchange
ratios begin to diverge from embodied labour ratios in all cases where
the organic composition o f the capitals concerned is different. Com­
modities now tend to sell in proportion to their “ prices o f production”
(i.e., their “ natural prices” in the Classical sense) instead o f in pro­
portion to their “ values” . And as in history, so in logic. In the first
approximation, Marx believed, one should assume that commodities
sell “ at their values” , and explain the origin o f surplus value on this
basis. One should then logically “ derive” average profits from surplus
value, and “ transform” values into prices o f production, thus arriving
at the second approximation in which the initial assumption is dropped.
By adopting this procedure, Marx maintained, it was possible to
show that the law o f value still operated— i.e., that the basic relations
1 C f. Capital, V o l. HI, p. 2 12 : “ C om p etition first brings about, in a certain individual
sphere, d ie establishment o f an equal m arket-value and m arket-price b y averaging the
various individual values o f the com m odities. T h e com petition o f the capitals in the
different spheres then results in the price o f production w h ich equalises the rates o f profit
betw een the different spheres. This last process requires a high er developm ent o f capitalist
production than the previous process.”
2 T h e assumption that com m odities sold “ at their values" under capitalism was o f course
m ade quite deliberately and w ith full consciousness o f the fact that it w o u ld later have
to be rem oved. See Selected Correspondence, pp. 129-33, and Capital, V o l. I, pp. 144,
footnote, 203, footnote, and 293-4. T h e w h o le question o f the transform ation o f values
into prices o f production is dealt w ith in some detail in M a rx ’s critique o f R icard o in the
Theories o f Surplus Value, w h ich w as w ritten som e years before the appearance o f V olu m e
I o f Capital,
182 stu d ie s in th e la b o u r th eo r y OF V A L U E

between men as producers o f commodities still ultimately determined

became “ capitalistically modified” and commodities no longer

actually tended to sell “ at their values” . As will be seen in the following
section, Marx believed that any other procedure would leave political
economy without a rational basis.
On the basis of his initial assumption, then, Marx goes on to examine
the economic aspects o f the relation between wage-labour and capital,
a relation which, as he puts it, “ determines the entire character o f the
mode o f production” 1 in capitalist societies. He leaves aside for future
consideration certain other socio-economic relations (e.g., that between
landlord and capitalist) which are regarded by him as essentially
derivative. He is concerned in particular to disclose the laws which
regulate the distribution o f income between wage-labour and capital.
This is a problem in which the theory of value must necessarily be
called upon for assistance, since the economic relation between wage-
labour and capital normally takes the form o f an exchange relation.
And it is a problem, too, which can only be adequately solved “ on
the supposition that prices are regulated by the average price” .2
Experience shows that the capitalist usually receives a “ normal” profit
even though he buys his raw materials, labour power, etc., at the
equilibrium prices fixed by the market, and sells his finished com­
modities at the equilibrium prices which are similarly fixed by the
market. Explanations o f profit couched in terms o f “ cheating” or
“ buying cheap and selling dear” are therefore definitely ruled out:
if you cannot explain the general nature o f profit on the assumption
that it is derived from selling commodities at their normal equilibrium
prices (i.e., on the Volume I assumptions, “ at their values”), said Marx,
then “ you cannot explain it at all” .3 This was a point o f much more
than merely formal significance. If Marx could show how profit
was derived from buying and selling commodities “ at their values” ,
then this would be equivalent, he believed, to showing that it was
through, rather than in spite of, the much-vaunted “ freedom” and
“ equality” characteristic o f a competitive capitalist economy that
exploitation was carried on in modem times.4

1 Capital, V o l. Ill, p. 1,025. 2 V oL I, p. 144, footnote.

3 Selected Works, V oL I, p. 312. C f. Anti-Diihring, p. 227.
4 C f. Capital, VoL I, p. 200: “ T h e essential difference betw een the various econom ic
form s o f society, betw een, fo r instance, a society based on slave labour, and one based
o n w ag e labour, lies o n ly in the m ode in w h ic h . . . surplus-labour is in each case extracted
fro m the actual producer, the lab ou rer."
 M A R x ’ s T H E O R Y OF V A L U E ( i i ) 183
Marx’s preliminary solution o f the problem o f profit in Volume I is
SO fa m ilia r that a Very short summary o f it is all th a t is req u ired here
If it is a fact o f experience that the capitalist usually finishes up with
more money than he started with, even when he buys and sells every­
thing at its equilibrium price— i.e., “ at its value” , on the Volume I
assumptions— then it is evident that he “ must be so lucky as to find,
within the sphere of circulation, in the market, a commodity, whose use
value possesses the peculiar property o f being a source o f value, whose
actual consumption, therefore, is itself an embodiment o f labour,
and consequently, a creation o f values” .1 And history in fact does put
such a unique commodity on to the market, by “ freeing” the direct
producer from his means o f production and thus transforming his
labour power— i.e., his capacity to labour— into a commodity. The
value o f the commodity labour power, like that o f all other commodi­
ties, can be taken (in this first approximation) to be determined by the
quantity o f labour required to reproduce it— i.e., roughly, by the
amount o f labour required to produce the commodities which are
regarded as necessary to keep a labourer and his family going for a
given time. But “ the past labour that is embodied in the labour-power,
and the living labour that it can call into action; the daily cost o f main­
taining it, and its daily expenditure in work, are two totally different
things.” 2 If the length o f the working day is x hours, then the cost
in labour o f maintaining a worker for that time will generally be
less than x hours. Thus even though labour power is bought at its
value, its use adds a surplus value (i.e., a value over and above its
own value) to the value o f the raw materials and depreciated machin­
ery and buildings used up in production— a surplus which the capitalist
is normally able to realise when he sells the finished commodity, even
though he sells it at no more than its value. Thus in the case o f each
individual branch o f production (on the Volume I assumptions)
the “ distribution o f the product” between wage-labour and capital
will depend upon the proportion in which the working day is there
divided up between what Marx called “ necessary” and “ surplus”
labour; and over the economy as a whole it will depend upon the
ratio between the aggregate quantity o f labour employed and the
quantity employed to produce wage-goods.3 This
1 Capital, V o l. I, p. 145. 2 Ibid., V o l. I, p. 174.
3 C f. ibid., V o l. I, p. 522: “Just as the individual labourer can do m ore surplus-labour
in proportion as his necessary labour-tim e is less, so w ith regard to the w ork in g popula­
tion. T h e smaller the part o f it w h ich is required for the production o f the necessary
means o f subsistence, so m uch the greater is the part that can be set to do other w o rk .’*
C f. D o b b , Political Economy and Capitalism, pp. 46 and 72; and cf. also above, pp. 94-5.
184 STUDIES IN THE L A B O U R T H E O R Y OF V A L U E

has in fact “ developed into a coercive relation, which compels the

working class to do more work than the narrow round o f its own
life-wants prescribes” .1 This forcible extension o f working time for
the benefit o f an exploiting class is o f course no new phenomenon;2
it is in the method, rather than the fact, o f exploitation that capitalism
differs from previous forms o f class society. In particular, the process
o f exploitation under capitalism is based not on a violation o f the
primary laws o f commodity production, but, on the contrary, on
their operation.8
The application o f the labour theory o f value to the commodity
labour power involves two special difficulties. In the first place, in
contradistinction to other commodities, “ there enters into the deter­
mination o f the value of labour-power a historical and moral element” .
The wants of a labourer depend not only upon “ the climatic and other
physical conditions of his country” , but also to a great extent upon
“ the degree o f civilisation o f a country, more particularly on the
conditions under which, and consequently on the habits and degree
o f comfort in which, the class o f free labourers has been formed” .
This implies that if the working class can hold the price o f its labour
power above its value for a long enough period, it may thereby
eventually succeed in raising the very value o f its labour power. But
it still remains true, o f course, that “ in a given country, at a given
period, the average quantity o f the means o f subsistence necessary
for the labourer is practically known” .4
In the second place, it is evident that “ if you call labour a commodity,
it is not like a commodity which is first produced in order to ex­
change” . 5 The production o f labour power, unlike the production
o f other commodities, is not normally controlled by individuals
who constantly adjust the supply to changes in demand in order to
1 Capital, V o l. I, pp. 296-7.
2 C f. ibid., V o l. I, p. 218: “ Capital has n o t in ven ted surplus-labour. W herever a part
o f society possesses the m onop oly o f the means o f production, the labourer, free or not
free, must add to the w o rk in g tim e necessary fo r his o w n maintenance an extra w o rk in g
tim e in order to produce the means o f subsistence fo r the owners o f the means o f produc­
tion, w hether this proprietor be the A thenian koXos t<aya66$, Etruscan theocrat, civis
Rom anus, N orm an baron, A m erican slave ow n er, W allachian B oyard, m odern landlord
or capitalist."
8 See ibid., ~~ ‘ ~ ‘
stated on p. 812: “ H ow ever m uch . . . the capitalist m ode o f appropriation m ay appear
to flout the prim ary laws o f com m odity p roduction, it nevertheless arises, not from any
violation o f these laws, but, on the contrary, fro m their operation."
4 Quotations from ibid., V o l. I, p. 150. C f. Selected Works, V o l. I, pp. 332-3.
6 Capital, V o l. I, p. $46, footnote. T h e w ord s are n o t M a rx ’s, but those o f an earlier
w riter from w h o m he is quoting.
 MARXES T H E O R Y OF V A L U E ( i i ) 185
maximise their net receipts. Thus the usual mechanism whereby
prices are brought into conformity with values appears to be lacking
in the case o f the commodity labour power.1 What justification had
Marx, then, in the earlier part o f his Volume I analysis, for assuming
that labour power, just like all other commodities, was bought and
sold at its value? It is not sufficient to reply that this was in effect
merely an a fortiori assumption o f the “ even i f . . .” type, designed to
buttress Marx’s contention that exploitation was carried on through
the laws o f commodity exchange rather than through “ force” or
“ unequal exchanges” . There is no doubt a strong element o f truth
in this. But it is evident that if the preliminary analysis o f surplus value
is carried out on the basis o f such an assumption, it must subsequently
be shown that economic forces exist which are sufficiently powerful,
if not to keep the price o f labour power constantly in conformity
with its value, at least to keep it from rising so far above its value as to
absorb the whole of the surplus. This consideration was o f course
present in Marx’s mind from the outset. In a letter to Engels o f April
1858, outlining an early plan o f his economic work, Marx pointed
out that in the whole o f the first section “it is assumed [inter alia\
that the wages o f labour are constantly equal to their lowest level” ,
this being, as he put it, “ the only possible way to avoid having to deal
with everything under each particular relation” . “ The movement
o f wages themselves” , he added, “ and the rise and fall o f the minimum
come under the consideration o f wage labour.” 2 Once the assumption
of the equality o f the value and the price o f labour power had been
dropped, however, and it had been admitted that under certain
circumstances the price o f labour power might rise above its value
and remain at that level for quite long periods (particularly when
the rate o f capital accumulation was high),3 the problem o f the limit
to the rise o f wages had to be fairly and squarely faced. Marx dealt
with it in his chapter on The General Law o f Capitalist Accumulation.

1 C f. Capital, V o l. I, p. 652, w here M a rx points out that even i f a rise in w ages did stimu­
late an increase in population, in the w a y in w hich the Classical economists suggested it
did, the lag w o u ld be so great b etw een the rise in w ages and “ any positive increase o f
the population really fit to work**, that “ the tim e w o u ld have been passed again and
again, during w h ich the industrial cam paign must have been carried through, the battle

the fact that “ not only the num ber o f births and deaths, but the absolute size o f the
families, stand in inverse proportion to the height o f w ages” . C f., h ow ever, p. 657,
w here M a rx speaks o f “ the prem ium that the exploitation o f children sets on their pro­
duction” .
2 Selected Correspondence, p. 106.
3 C f., e .g .f Capital, V o l. I, pp. 531-2 and 625-35.
 186 S T U D IE S IN T H E L A B O U R T H E O R Y OF V A L U E

Broadly speaking, he argued there that the dynamic development

o f mot
composition of capital, so that the demand for labour (while it might
increase absolutely) tended to decline relatively to the accumulation
o f capital. This relative diminution in the demand for labour, together
with the absolute diminution which took place whenever wages
happened to rise substantially,1 was generally successful in keeping
the long-run equilibrium price o f labour power fairly near to its
value. It did this not only directly, but also indirectly through the
creation and maintenance o f a “ reserve army” o f labour, which was
replenished in times o f depression and whose existence naturally
militated against the efforts o f the working class to increase— and at
times even to maintain— the level o f wages. “ The demand for labour” ,
Marx claimed,
“ is not identical with increase o f capital, nor supply o f labour
with increase o f the working class. It is not a case o f two independent
forces working on one another. Les d6s sont pipćs. Capital works
on both sides at the same time. If its accumulation, on the one hand,
increases the demand for labour, it increases on the other the supply
o f labourers by the ‘setting free’ o f them, whilst at the same time
the pressure o f the unemployed compels those that are employed
to furnish more labour, and therefore makes the supply o f labour,
to a certain extent, independent o f the supply o f labourers. The
action o f the law o f supply and demand o f labour on this basis
completes the despotism o f capital.” 2
Thus although there was no Lassallean “ Iron Law of Wages” 3 to
prevent the working class from bettering their position, the general
tendency o f capitalist production, Marx believed, was to push the
price o f labour power downwards towards its value.

4. The Analysis in Volume I I I o f “ Capital”

At the beginning o f Volume III o f Capital, Marx described as follows
die relation between this volume and the two which had preceded it:
1 A rise in wages could affect the dem and for labour in tw o ways. First, i f it w ere
sufficiently substantial the rate o f accum ulation m ight be checked. Second, it m igh t
induce the capitalist to substitute m achinery fo r labour.
2 Capital. V o l. I. pp. 6sa-<. C f. ibid.. pp. 65 w . “ T h e industrial reserve arm y, during
the periods o f stagnation and average prosperity, w eighs d o w n the active lab o u r-arm y;
during the periods o f over-production and paroxysm , it holds its pretensions in check.
R ela tiv e surplus-population is therefore the p ivot upon w h ich the law o f dem and and
supply o f labour w orks. It confines the field o f action o f this law w ithin the lim its
absolutely convenient to the activity o f exploitation and to the dom ination o f capital."
3 O n the “ iron law o f w ages” see M arx, Critique of the Gotha Programme (English edn.),
pp. 21-5. C f. the com m ent b y Engels on p. 39.
 M A R X ’ s T H E O R Y OF V A L U E ( i l ) 187
“ In the first volume we analyzed the phenomena presented by

productive process without regard to any secondary influences o f

conditions outside o f it. But this process o f production, in the strict
meaning o f the term, does not exhaust the life circle o f capital.
It is supplemented in the actual world by the process o f circulation,
which was the object o f our analysis in the second volume. W e
found in the course of this last-named analysis, especially in part III,
in which we studied the intervention o f the process o f circulation
in the process o f social reproduction, that the capitalist process of
production, considered as a whole, is a combination o f the pro­
cesses o f production and circulation. It cannot be the object o f this
third volume to indulge in general reflections relative to this combin­
ation. W e are rather interested in locating the concrete forms
growing out o f the movements o f capitalist production as a whole
and setting them forth. In actual reality the capitals move and meet
in such concrete forms that the form o f the capital in the process
o f production and that o f the capital in the process o f circulation
impress one only as special aspects o f those concrete forms. The
conformations o f the capitals evolved in this third volume approach
step by step to that form which they assume on the surface o f society,
in their mutual interactions, in competition, and in the ordinary
consciousness of the human agencies in this process.” 1
In conformity with this plan, the first major step which Marx took
in Volume III— and the only one which directly concerns us here—
was the derivation o f profit from surplus value. “ The surplus-value
and the rate o f surplus-value” , Marx wrote, “ are, relatively, the
invisible and unknown essence, while the rate o f profit and the
resulting appearance o f surplus-value in the form o f profit are pheno­
mena which show themselves on the surface.” 2 Or, as he put it in
another place, “ profit is . . . that disguise o f surplus-value which
must be removed before the real nature o f surplus-value can be
discovered. In the surplus-value, the relation between capital and
labour is laid bare.” 3 But once this relation has been laid bare, the
disguise must be put on again and examined, for it is by no means
unrelated to the thing which it disguises. That is essentially the task
which Marx undertakes in the first two parts o f Volume III.
Surplus value, in accordance with the Volume I analysis, is related
to one part o f the capital only— the part which is spent on wages.
But profit is related to the whole o f the capital. Thus, as we have
1 Capital, Vol. HI, pp. 37-8. 2 Ibid., Vol. Ill, p. 56.
8 Ibid., VoL m , p. 62. C£ above, p. 181.
 188 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

already seen above, immediately one starts trying to explain the

face to face with the fact that if the rates o f profit received on two
capitals o f different organic compositions are to be the same, then
the amount o f profit received by the owner o f at least one o f the
capitals must be greater or less than the amount o f surplus value
produced with its aid. If one has argued, as Marx has, that the only
possible permanent source o f profit under competitive conditions
is the value produced by the surplus labour o f the workers employed
by the capitalist,1 there is clearly only one w ay o f explaining the
process o f conversion so as to take account o f this fact. One must
argue that the aggregate surplus value produced over the economy
as a whole is, as it were, re-allocated among the different capitalists
so that they share in it not in accordance with the amount o f capital
they have spent on wages but in accordance with the total amounts
o f capital which they have severally employed.8 The only possible
alternative would be to reject the whole Volume I analysis and to say
that a capital o f 100 always produced the same amount o f surplus
value (and profit) no matter how it was constituted— in which case,
Marx believed, “ political economy would then be without a rational
basis” .8
This conversion o f surplus value into average profit necessarily
implies the transformation o f values into what Marx called “ prices
o f production” . Under capitalism, commodities produced by capitals
whose organic composition is different from the social average do not
tend to sell “ at their values” , but at “ prices o f production” which
diverge from their values. Marx's “ price o f production” , which
includes profit at the average rate, is “ the same thing which Adam
Smith calls natural price, Ricardo price o f production, or cost o f production,
and the physiocrats prix nicessaire, because it is in the long run a
prerequisite o f supply, of the reproduction o f commodities in every
individual sphere” .4 These prices o f production, Marx insists, have
1 C L , e.g., Capital, V o l. HI, p. 176: “ T h e only source o f surplus-value is livin g lab ou r.”
2 “ W h ile the capitalists in the various spheres o f p roduction reco ver the value o f the
capital consum ed in the production o f their com m odities th ro u g h the sale o f these, th e y
d o not secure the surplus-value, and consequently the profit, created in their o w n sphere
b y the production o f these comm odities, but only as m uch surplus-value, and profit, as
falls to the share o f e ve ry aliquot part o f the total social capital o u t o f the total social
surplus-value, o r social p ro fit produced b y the total capital o f society in all spheres o f
production. E very 100 o f an y invested capital, w hatever m a y b e its organic com position,
draw s as m uch profit during one year, or any other period o f tim e, as falls to die share
o f every 100 o f the total social capital during the same p eriod” (Ibid,, V o l. IQ, pp. 186-7).
2 Ibid., V o L QI, pp. 176-7. * Ibid., V o L IQ, p . 233.
 M A R x ’ s T H B O R Y OF V A L U E ( i i ) I89

to be derived from the values o f commodities as analysed in Volume I,

significant sense “ subject to law” . Prices o f production, he says,

“ are conditioned on the existence o f an average rate o f profit, and
this, again, rests on the premise that the rates o f profit in every
sphere o f production, considered by itself, have previously been
reduced to so many average rates o f profit. These special rates o f
profit are equal to £ in every sphere o f production, and they must be
deduced out o f the values o f the commodities, as shown in volume I.
Without such a deduction an average rate o f profit (and conse­
quently a price o f production o f commodities), remains a vague
and senseless conception.” 1
Given the feasibility o f such deduction, however, it is surely apparent
that Marx’s Volume III analysis o f exchange ratios in terms o f prices
o f production ought properly to be regarded as a modification,
rather than as a refutation, o f the Volume I analysis in terms o f values.
The total amount o f surplus value available for allocation among the
capitalists is determined according to the simple Volume I analysis;
the values o f the constituent elements o f the individual capitals may
also be taken (at least for the moment) to be determined according
to the Volume I analysis; and it can therefore be said that the level
o f the average rate o f profit, and with it both the individual prices
o f production and the degree o f divergence o f individual prices o f production
from values, are also ultimately determined according to the Volume I
analysis. The fact that during a particular historical period “ com­
modities are not exchanged simply as commodities, but as products
o f capitals” 8— i.e., as “ capitalistically modified” commodities— does
indeed introduce a “ disturbance” into the operation o f the law o f
value as described in Volume I. But it is a calculable disturbance, and
“ in the exact sciences it is not the custom to regard a calculable dis­
turbance as a refutation o f a certain law” .8
1 Capital, V o L IUf pp. 185-6. C f. Theories o f Surplus Value, p. 231: “ T h e average profit,
and therefore also the production prices, w o u ld b e purely im aginary and w ith ou t basis
i f w e did not take the determ ined value as the foundation. T h e equalisation o f the surplus
values in different spheres o f production makes n o difference to the absolute m agnitude
o f this total surplus value b u t o n ly alters its distribution am on g the different spheres o f
production. T h e determination o f the surplus value itself h ow ever on ly arises from the
determ ination o f value b y labour tim e. W ith o u t this, the average profit is an average o f
nothing, a m ere figm ent o f the im agination. A n d in that case it m ight ju st as w e ll b e
1,000 per cent, as 10 per cent."
8 Capital, V o l. HI, p. 206.
8 P. Firem an, quoted b y Enggls in his preface to V o lu m e HI o f Capital, p. 25. C f
H ilferding, Bohm-Baurerk’s Criticism o f M arx (Sweezy^s edn.), p. 16 1: “ T h e la w o f value,
directly valid fo r the social product and its parts, enforces itself o n ly inasmuch as certain
190 S T U D I E S IN TH E L A B O U R T H E O R Y OF V A L U E

Marx illustrated this argument with a set o f simple arithmetical

formulae which are summarised in the following table.1

I. 2. 3- 4- 5- 6. 7« 8.
1
Devia­
Price
tion o f
Used- Cost Surplus of
Capitals Value Profit Price
up c Price Value Pro­
from
duction
Value

I 80c + 20V 50 70 20 90 22 92 + 2
II 70c + 30V 5i 81 30 i i i 22 103 - 8
TR6oc+ 4.0V 5i 9i 40 131 22 113 -1 8
IV 85c + i$v 40 55 15 70 22 77 + 7
V95 c + $v 10 15 5 20 22 37 + 17
no 422 no 422

Marx deliberately simplifies the calculation by assuming that none

o f the five commodities concerned enters into the production o f any
o f the others. Thus capitals I to V can be considered as the component
parts o f one single capital o f 500. Each o f the constituent capitals
shown in col. 1 totals 100, but the cost price o f each o f the outputs is
less than 100, since it is assumed that only a portion o f the value o f
the constant capital is transferred to the commodity in the period
we are considering..2 The amount so transferred is shown in col. 2,
and the cost price, which is the sum o f v and used-up c, is shown in
col. 3. It is assumed that the working day is everywhere equally
divided between necessary and surplus labour, so that surplus value
(shown in col. 4) is equal to v. The total value o f each o f the outputs
being considered (shown in col. 5) represents the sum o f the cost
price and the surplus value. N ow it is evident that the sale o f these
commodities at their values would result in very unequal rates o f
profit on each o f the capitals. In actual fact, however, Marx maintains,
the total pool o f surplus value, amounting to n o , is allotted (“ by
means o f competition”)8 to the individual capitals in accordance

istically-produced com m odities— b a t these m odifications can o n ly b e m ade comprehens­

ible b y the discovery o f the social nexus, and the law o f value renders us this service.'*
1 This table is an am algam ation o f those on pp. 183 and 185 o f Capital, V o l IH, w ith
som e o f the figures rearranged.
2 T h e turnover periods o f v are assumed to be the same in each case.
2 Capital, VoL III, p. 186.
 M A R x's T H E O R Y OF VALUE (ii) 191
with the total size o f each— in this case uniformly, so that each receives

which each output actually tends to sell, is the sum o f the cost price
and the profit, and differs in each case from the value. But since the
total profit is by definition equal to the total surplus value, it naturally
follows that in the present case the sum o f the values is equal to the
sum o f the prices o f production, or, to put the same thing in another
way, that die deviations o f prices from values (col. 8) cancel one
another out.1
Marx’s statement that the sum o f the prices is equal to the sum
of the values has come in for considerable criticism. From Bohm-
Bawerk2 onwards, critics have questioned whether this statement
can be held to be meaningful, whether it embodies a tautology, and
so on, and have generally concluded that Marx’s statement is quite
untenable. Some o f the difficulty no doubt arises from the fact that
Marx, having illustrated this equality arithmetically in the particular
case just described (the case where mutual interdependence is ab­
stracted from), immediately went on to say that “ in the same way
the sum o f all the prices o f production o f all commodities in society,
comprising the totality o f all lines of production, is equal to the sum
o f their values” .3 The implication o f this statement, read in its context,
might seem to be that when the assumption that none o f the com­
modities concerned entered into the production o f any o f the others
was dropped, so that the values o f input as well as those o f output
had to be transformed into prices o f production, a transformation
carried out on the basis o f a redistribution o f the “ pool” o f surplus
value would bring out total prices equal to total values in the arith­
metical sense. This is in fact not so. On any plausible set o f assumptions
regarding the manner in which the different branches o f the economy
are inter-related, it will soon be found on experimenting with various
sets of figures that if the values o f input as well as those o f output are
to be transformed into prices o f production, it is normally impossible
to effect a simultaneous transformation which will make total profit
equal to total surplus value and at the same time make total prices o f
production equal to total values. In all but very exceptional cases, we
may prese
1 It is evident that the o n ly case w here price and value w ou ld coincide w o u ld be one
in w h ich the constitution o f the capital concerned coincided w ith the “ social average.”
2 Op. cit.y pp. 32-8. 3 Capital, V o l. Ill, p. 188.
4 For an exam ple o f one o f these exceptional cases, see the transformation exhibited
in Tables II and III6 on pp. h i and 120 o f Sw eezy’s Theory o f Capitalist Development.
192 ST U D IE S IN TH E LA B O U R THEORY OF V A L U E
had been drawn to this fact, he might well have reformulated some
o f his expressions regarding the equality o f total prices and total
values, while still insisting on the essential point they were designed
to express— v iz ., that after the transformation o f values into prices
o f production the fundamental ratio between the value o f labour
power and the value o f commodities in general, upon which profit
depended,1 could still be said to be determined in accordance with the
Volume I analysis.2 In the special case where none o f the commodities
concerned enters into the production of any o f the others, he might
have said, the ratio remains the same for the simple reason that the
relevant quantities remain the same— the denominator remains the
same by hypothesis, and the numerator remains the same because
in this case the sum o f the prices necessarily equals the sum o f the
values. In the more difficult case where the various branches o f pro­
duction are mutually interdependent, he might have added, the sum
o f the prices does not necessarily “ come out” equal to the sum o f the
values, but the fundamental ratio can still be said to be determined
in accordance with the Volume I analysis.
However, it would be wrong to suggest that Marx simply ignored
this more difficult case. On the contrary, his examination o f it, al­
though by no means detailed, was sufficiendy well organised to be
said to constitute a second stage in his argument. He begins by dropping
the assumption that none o f the commodities concerned enters into
the production o f any o f the others. In actual fact, he writes, “ the price
o f production o f one line o f production passes, with the profit con­
tained in it, over into the cost-price o f another line o f production” .
At first sight it might seem as if this would mean that the profit
accruing to each capitalist might be counted several times in a calcula­
tion such as that which has just been made, but Marx has little difficulty
in disposing o f this superficial objection. The dropping o f the assump­
tion, however, does indeed make one “ essential difference” , which
Marx describes as follows:

“ Aside from the fact that the price of a certain product, for instance
the product o f capital B, differs from its value, because the surplus-
value realized in B may be greater or smaller than the profit o f

those commodities which form the constant part o f its capital,

and which indirecdy, as necessities of life for the labourers, form
1 Sec above, p. 183.
2 C £ M . H . D o b b , Political Economy and Capitalism, pp. 72-3.
 MARX*S T H E O R Y OF VALUE ( i l ) 193
its variable part. So far as the constant part is concerned, it is itself
equal to the cost-price plus surplus-value, which now means cost-
price plus profit, and this profit may again be greater or smaller than
the surplus-value in whose place it stands. And so far as the variable
capital is concerned, it is true that the average daily wage is equal
to the values produced by the labourers in the time which they
must work in order to produce their necessities o f life. But this
time is in its turn modified by the deviation o f the prices o f produc­
tion o f the necessities o f life from their values. However, this
always amounts in the end to saying that one commodity receives
too little o f the surplus-value while another receives too much, so
that the deviations from the value shown by the prices o f production
mutually compensate one another. In short, under capitalist produc­
tion, the general law o f value enforces itself merely as the prevailing
tendency, in a very complicated and approximate manner, as a
never ascertainable average o f ceaseless fluctuations.” 1
Marx returned to the same point a few pages later, pointing out that
the transformation process involves a modification o f the Volume I
assumption that “ the cost-price o f a commodity is equal to the value
o f the commodities consumed in its production” . The price o f pro­
duction o f a certain commodity, he writes,
“ is its cost-price for the buyer, and this price may pass into other
commodities and become an element o f their prices. Since the price
o f production may vary from the value o f a commodity, it follows
that the cost-price o f a commodity containing this price o f produc­
tion may also stand above or below that portion o f its total value
which is formed by the value o f the means o f production consumed
by it. It is necessary to remember this modified significance o f the
cost-price, and to bear in mind that there is always the possibility
o f an error, if we assume that the cost-price o f the commodities
o f any particular sphere is equal to the value o f the means o f pro­
duction consumed by it. Our present analysis does not necessitate
a closer examination o f this point.” 2
And in a later passage, repeating the same point once more, he argued
that “ this possibility does not alter the correctness o f the rules laid
down for commodities o f average composition” .3

1 Q uotations fro m Capital, V o l. IIT, pp. 188-90. T h ere is a similar passage at the end o f
M a rx ’s com m ents on B ailey in the Theories o f Surplus Value (not included in the English
edn.) w h ich show s that the point had occurred to him several years before the publication
o f the first v o lu m e o f CapitaL
8 Capital, V o L III, pp. 194-5. 8 Ihiđ.t V o l. HI, pp. 241-3.
194 S T U D IE S IN THE L A B O U R T H E O R Y O F V A L U E

the picture.1 Marx’s “ method o f transforming prices into values” ,

it is said, meaning by this his original calculation outlined in the
table above, contains an “ error” , since it does not take account o f the
fact that the values of elements o f input as well as those of elements
o f output have to be transformed into prices.2 It is then claimed that
Marx can be rescued from this “ error” simply by showing the formal
possibility o f a consistent “ derivation of prices from values” in cases
•

When values are transformed into prices, the ratio o f price to value
in the case o f a given commodity must be the same when the com­
modity is considered as input as when it is considered as output;
and after the transformation the rate of profit must come out equal
in the case o f each capital concerned. These ratios o f price to value,
and the rate of profit, are regarded as the unknowns in the problem.
The “ transformation problem” then reduces itself to this: can the
relations between the various branches of production, and the various
conditions which are to be fulfilled as a result o f the transformation,
be expressed in the form of an equational system which is “ deter­
minate” in the mathematical sense— i.e., roughly, in which the
number of equations is equal to the number o f unknowns? The
assumption lying behind these investigations is that i f the relations
and conditions can in fact be so expressed, Marx’s method o f
“ deriving prices from values” is itself transformed from an invalid to
a valid one.
The best-known solution, that o f Bortkiewicz,3 commences with
the particular set o f value-relationships postulated by Marx as existing
between the three main departments of the economy (I— means o f
production; 11= workers’ consumption goods; 111=capitalists* con­
sumption goods) under conditions o f simple reproduction. Employing
the usual notation, these value-relationships can be expressed as follows
in the form of three equations:

I. Ci + v1 + = Ci + c2 + c3
II. c2 + + = + + 8
v2 s2 Vi vz v
III. C3 + VB 53 5=1 *1 4 “ S2 4 “ ^3
1 T his is a rather special problem, and the reader m ay skip to p . 198 belo w w ith out
losing anything o f v e ry great im portance. I deal w ith it in detail here only because a
considerable am ount o f attention has recently been paid to it b y critics o f M arx.
2 A s w ill be clear fro m w hat has been said above, it was n o t inten ded to take account
o f this fact, since m utual interdependence w as specifically abstracted from .
3 O n the Correction o f M arx’s Fundamental Theoretical Construction in the Third Volume
o f “ Capital" , reprinted as an appendix to S w ce zy ’s edn. o f B o h m -B a w e rk and H ilferding.
 M A R x ’ s T H E O R Y OF V A L U E ( i i ) 195
If we take the ratio o f price to value to be x in the case o f means o f

the case o f capitalists' consumption goods; if we further call the average

rate o f profit r; and if we state as a condition o f the problem that the
relations appropriate to simple reproduction should continue to obtain
after the transformation o f values into prices as before it, then the
following equalities must hold:

L Ci* + Viy + r (qx + v ^ ) = (cx + c2 + c3)x

EL c2x + v2y + r (c2x + v2y) = (v1 + v2+ va)y
HI. czx + v zy + r (c3x + vzy) = (5X+ s%+ s3) z

Here there are four unknowns (x, y, z and r),and only three equations.
Bortkiewicz reduces the unknowns to three by the ingenious expedient
o f assuming: (a) that the value scheme was expressed in terms of
money, and (b) that gold is the money commodity, and is produced
in department III, in which case z may reasonably be taken as = 1 .
The equational system thereupon becomes determinate, and solutions
for x, y and r can be fairly readily derived. Upon applying these
solutions to various sets o f figures, it is seen that total profit comes
out equal to total surplus value, but that total prices normally diverge
from total values. Neither the equality nor the divergence, however,
has anything more than formal significance. As Bortkiewicz himself
says, in relation to a particular set o f figures,
“ That the total price exceeds the total value arises from the fact
that Department III, from which the good serving as value and price
measure is taken, has a relatively low organic composition o f capital.
But the fact that total profit is numerically identical with total
surplus value is a consequence o f the fact that the good used as value
and price measure belongs to Department III.” 1
It is only in the special case where the organic composition o f the
capital employed in Department III is equal to the social average
that the sum o f the prices will come out equal to the sum o f the
values.
Wintemitz, in a note in the Economic Journal o f June 1948, adopts
the same general attitude towards the problem as Bortkiewicz, but
clears the Bortkiewicz solution o f certain redundancies and unneces­
sary artificialities. He commences with the usual value schema in the
three departments:
1 Bortkiewicz, op. cit., p. 205.
196 ST U D I E S IN THE L A B O U R THEORY OP V A L U E

L Cx + Vx + St = ax
n. cs + v\ + s2» a2
HI. Cs + V2 + Sz ~ a*

But instead o f assuming the equilibrium conditions appropriate

to Marx’s reproduction schemes, he assumes merely that when ax
varies by x (the price-value ratio for means o f production), then
cx> c2 and c3 also vary by x, and that when a2 varies by y (the price-
value ratio for workers’ consumption goods), then vXt v2 and v3
also vary by y. Thus he arrives at the following simple equadonal
system:

I. cxx + Piy + S x = axx

U. c2x + v2y + S 2 = a2y
m. c3x + vzy + S 3 = azz

B y putting Cl/ |* = (each o f these expressions being

equal to i + 0 » solutions for x:y and for r are easily obtained. A
further set o f relationships between x f y and z must then be postulated
in order to determine the price level for the system as a whole. From a
purely logical point o f view, it obviously does not matter what rela­
tionships are postulated, but Winternitz puts
ai* + a2y + a3z = ax + a2 + a8
(i.e., sum o f prices = sum o f values) because in his opinion this is
“ the obvious proposition in the spirit of the Marxian system” .1
x , y and z are then yielded immediately without any special difficulty.
When applied to various sets o f figures, thesesolutions naturally
bring out the sum o f prices equal to the sum of values,but total profit
normally diverges from total surplus value.
Wintemitz’s solution, although in essence very similar to Bort-
kiewicz’s, is evidently simpler, and therefore more acceptable from a
purely mathematical point of view. Indeed, it is the special merit
o f Wintemitz to have exposed the triviality o f the whole problem
as so posed— a triviality which tended to be hidden by Bortkiewicz’s
over-elaborate and confusing method. The Wintemitz solution is an
effective reply to those who said that it was not formally possible
to transform values into prices when elements of input as well as output
were involved. But it seems to me that something more is required
before a transformation of the Bortkiewicz-Wintemitz type can
properly be used to illustrate the second stage o f Marx’s Volume III
1 Economic Journal, June 1948, p. 279.
 M A R X ’ s THEORY O P VALU E ( i l ) 197
argument. The essential point for Marx, as we have seen, was that after
aggregate surplus value had been converted into profit, and values
consequently transformed into prices, the fundamental ratio between
the value o f labour power and the value o f commodities in general,
upon which profit depended, could be regarded as remaining un­
altered as a result o f the transformation. I have argued elsewhere1
that it is quite possible to effect a transformation in which this ratio
in fact remains unaltered— provided we assume that the organic
composition o f capital in Department Q is equal to the social average—
and that such a transformation can provide us with a suitable arith­
metical illustration for use in connection with the second stage o f
Marx’s argument.
It may well be, as Sweezy has suggested, that Marx would have dealt
with this problem in more detail if he had lived to work over Volume
HI again.2 On the other hand, the relative importance o f the problem
in Marx’s general theoretical scheme is hardly very great, and my
own feeling is that he would probably have left most of the relevant
passages much as they are. In any event, I do not think he would have
felt himself either obliged to provide an amended set o f calculations
to illustrate the second stage o f his argument or embarrassed by any
inability to do so. The function o f the simple arithmetical illustrations
in Capital is much the same as their function in Ricardo’s Principles—
and entirely different from their function in much o f the work o f
modem mathematical economists. They are designed to illustrate
arguments (or steps in arguments), and not to prove them; and they
are usually designed to do this only on a very elementary level. To
suggest that any argument in Capital stands or falls by Marx’s arith­
metical illustrations (or by the lack o f them) is to betray a serious
misunderstanding o f his method. As Kenneth May has said, Marx
“ used calculations primarily as illustrations to accompany verbal
arguments which combined process and cross-section analysis in a
way which could hardly be fitted to the mathematical techniques
available even to-day” .8 It would be a mistake, wrote Engels, to
assume
“ that one may look in Marx’s work at all for fixed and universally
applicable definitions. It is a matter o f course that when things
and their mutual interrelations are conceived not as fixed, but as
1 Economic Journal, March 1956.
* See Sweezy's introduction to his edn. of Bohm-Bawerk and Hilferding, p. xxiv.
8 Economic Journal, December 1948, p. 598.
198 S T U D IE S IN THE L A B O U R T H E O R Y OF VA L U E

changing, that their mental images, the ideas concerning them,

are likewise subject to change and transformation; that they cannot
be sealed up in rigid definitions, but must be developed in the
historical process o f their formation.” 1

In concluding this chapter, reference should be made to one problem

which is o f importance, as we shall see later, in connection with the
task of reapplying the basic Marxian categories to the monopoly
stage o f capitalism. I have argued above that Marx was primarily
concerned to show how the operation of the law o f value under simple
commodity production, where the normal exchange was one o f
‘‘value” for “ value” , was modified by the introduction of capitalism.
But the assumption that commodities sold “ at their values” under
simple commodity production was not, I think, at least in most
o f the relevant contexts, intended to imply that commodities had in
fact normally tended to sell “ at their values” in any specific form o f
pre-capitalist society. Marx’s assumption had reference not so much
to actual exchange relations in this or that specific pre-capitalist society,
but rather to exchange relations under commodity production as such
in pre-capitalist society as such. In other words, he was talking about
the way in which exchange ratios would be determined under a sort
o f “ pure” pre-capitalist commodity production, unalloyed by elements
o f monopoly, etc. In what sense exactly, then, can the logical trans­
formation o f values into prices o f production be said to reflect a real
historical transformation?
In one passage in Volume III o f Capital, Marx seems to suggest
that the logical transformation o f values into prices o f production
reflects a historical transformation o f exchange ratios which were in
actual fact normally equal to embodied labour ratios into exchange ratios
which were equal to price o f production ratios. “ The exchange o f
commodities at their values, or approximately at their values”, he
writes,

“ requires. . . a much lower stage than their exchange at their prices

o f production, which requires a relatively high development o f
capitalist production.

atcd by the law o f value, it is quite appropriate, under these

circumstances, to regard the value o f commodities not only
theoretically, but also historically, as existing prior to the prices
1 Capital, Vol. Ill, p. 24. Cf. Marshall’s preface to the 1st edn. o f his Principles of Econo­
mics. Marx was not the only great economist who learned much from Hegel.
 M A R X ’ s T H E O R Y OF V A L U E ( i i ) 199
o f production. This applies to conditions, in which the labourer owns
his means o f production, and this is the condition o f the land-
owning farmer and o f the craftsman in the old world as well as the
new. This agrees also with the view formerly expressed by me that
the development o f product into commodities arises through the
exchange between different communes, not through that between
the members o f the same commune. It applies not only to this
primitive condition, but also to subsequent conditions based on
slavery or serfdom, and to the guild organisation o f handicrafts,
so long as the means of production installed in one line o f production
cannot be transferred to another line except under difficulties, so
that the various lines o f production maintain, to a certain degree,
the same mutual relations as foreign countries or communistic
groups.” 1

Engels, referring to this passage in his important “ Supplement” to

Volume III o f Capital2 said that “ if Marx had had an opportunity
to work over the third volume once more, he would doubtless have
extended this passage considerably. As it stands it gives only the
sketchy outline o f what is to be said on the point in question.” Engels
therefore proceeded to amplify it along the lines which he thought
Marx would have followed, arguing that during the whole period
o f pre-capitalist commodity production “ prices gravitate towards
the values fixed by the Marxian law and oscillate around these values” .8
N ow if “ prices” here refers to actual market prices, as the context
would certainly indicate, it does not seem to me that Engels’s general­
isation can possibly be regarded as valid, owing to the prevalence o f
various forms o f monopoly, the low degree o f factor mobility, etc.,
in most pre-capitalist societies. But if “ prices” be taken to refer to
supply prices the generalisation becomes much more true.4 Broadly
speaking, there are two main types o f supply price to be found in the
history o f commodity exchange— first, that o f the producer who
thinks o f his net receipts as a reward for his labour, and, second,
that o f the producer who thinks o f his net receipts as a profit on his
capital. It seems to me quite reasonable to assume that supply prices
o f the first type will tend to be proportionate to quantities o f embodied
1 Capital. Vol. PI, pp. 208-9. Cf. ibid., pp. 207-8 and 212.____________________
2 Engels on “ Capital**, p. 102. 3 Ibid., p. 106.
4 1 am using the term “supply price” in a broad sense (divorced from its familiar
Marshallian connotations) to mean the price which, as Marx put it, “is in the long run a
prerequisite of supply, of the reproduction of commodities in every individual sphere”
[Capital, VoL III, p. 233). It is simply the price which a producer must receive for his
commodity if he is to continue producing it.
200 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

labour, and that such supply prices are typical o f commodity exchanges
in pre-capitalist societies. Thus even if the barriers standing in the way
o f an automatic adaptation o f market prices to supply prices in pre­
capitalist societies are too important to be assumed away or classified
as mere “ frictions” , it can at least be said that the supply prices themselves
“ gravitate towards the values fixed by the Marxian law” . What
Marx actually did, in effect, was to assume that the first type of supply
price was characteristic o f commodity exchanges in pre-capitalist
society, and to demonstrate how the introduction o f capitalism brought
about the transformation o f the first type o f supply price into the
second type. This, I think, is the historical transformation o f which
the logical transformation considered above must be regarded as
the “ corrected mirror-image” .
 C h apter Si x

THE CRITIQUE OF THE MARXIAN LABOUR

THEORY
i . Introduction
Y the time of the publication o f Volume III of Capital in 1894,

B Marxism had become the official doctrine o f the majority o f

' the leading European socialist parties, and a new stage in the
development o f the labour theory had begun. Thenceforth attacks
upon or defences o f the labour theory assumed direct political signi­
ficance to a much greater degree than ever before. Under such circum­
stances, it was probably inevitable that the labour theory should enter
upon new paths o f development, rather different in character from
those which it had followed during the past century, and very different
in character from those which the marginal utility theory was follow­
ing more or less contemporaneously.
Indeed, it may appear to many non-Marxists that the word “ develop­
ment” is a misnomer when used to describe the vicissitudes o f the
labour theory during the next sixty years. At first sight, the salient
features o f its history during this period may appear to be simply a
series o f well-aimed attacks upon it on the one hand, and a series o f
dogmatic defences o f it on the other. Numerous critics, it may appear,
have assailed the theory from every conceivable angle and refuted
it a dozen times from each o f them, but “ official” Marxism continues
obstinately to uphold it in its original form as laid down in the gospels
o f the Master. It sticks to it so dogmatically, we are often told, simply
because it serves to “ demonstrate the exploitation o f the working
class under Capitalism” .1 In other words, it insists on all this “ Hegelian
stuff and nonsense” ,2 and on the “ rigmarole” 3 o f the transformation
o f values into prices, simply because “ the fact o f exploitation lies
behind the phenomena o f the market” .4
No one will deny, o f course, that many o f the basic propositions
o f Marxism have often been accepted dogmatically by Marxists in
1 O. Lange, “ Marxian Economics and Modem Economic Theory” , in The Review of
Economic Studies, Vol. n, No. 3, June 1935, p. 195, footnote 3.
2 Joan Robinson, On Re-Reading Marx (1953), p. 20.
3Joan Robinson, in the Economic Journal, June 1950, p. 360. 4 Ibid., p. 363.
202 S T UD IE S IN THE L A B O U R T H E O R Y OF V A L U E

the past, and that “ vulgar Marxism” is to some extent still with us
the circumstances in which Marxism was diffused and
developed, this could hardly have been otherwise. No one will deny,
either, that some o f the popular appeal o f the labour theory still lies
(as it did in the days o f the Ricardian socialists) in the political and
ethical implications which are sometimes read into it. But this is not
at all to imply that the view I have just been describing is a correct one.
To say nothing of the “ unworthy contempt o f opponents” 1 which it
expresses, this view is based on a complete misconception o f the role o f
the labour theory in the Marxian system as a whole. As a result o f this
misconception, the reasons for the “ official” retention o f the leading
elements of Marx’s value theory are misunderstood, and the extent
to which the theory has in fact been developed since Marx’s time is
greatly underestimated.
Marx’s value theory has been retained not because it is believed to
be good propaganda, but because it is believed to be good science.
Marxists have indeed opposed the numerous suggestions which have
been made from both inside and outside their ranks to purge the labour
theory from the body of Marxism, or to “ reconcile” it with the mar­
ginal utility theory. But they have not done this for religious reasons,
or out o f obtuseness. They have done it because in their view the labour
theory is an essential tool for the scientific analysis o f capitalist reality.
They have been encouraged in this view by the fact that many o f
those within their own ranks who have criticised the labour theory
have eventually shown themselves to be interested not so much in
purging the labour theory from Marxism as in purging Marxism
itself from the ideology o f the labour movement. This does not
mean, however, either that there has been no development o f the
labour theory at all since 1894, or that there is not room for much
more development within the broad Marxian framework. It means
simply that development has not normally taken the form o f the out-
and-out rejection o f any o f the basic principles o f the original theory
(as has been the case with the marginal utility theory), But has rather
taken the form o f the reapplication o f the theory to new circumstances.
It is true, o f course, that there are still gaps in the working-out o f the
the part
o f Marxists for the original Marxian doctrines. I* is due rather to the
fact that the attention o f Marxists has so often had to be turned to
other theoretical problems (e.g., the problem o f the “ breakdown”
1 A. D. Lindsay, Karl M arx's “ Capital" (1925), p. 54.
 C R I T I Q U E OF THE L A B O U R T H E O R Y 203

of capitalism) which are o f more direct and immediate relevance to

the
fact that since the ’thirties the political conditions in many countries
have hardly been conducive to the development of serious research
into the theroretical principles of Marxism.
One way o f illustrating the rationale o f the Marxists’ defence o f the
theory, and the nature o f the development it has undergone,1 is to
consider in turn the various types of attack which critics have made
upon it. The attacks can be conveniently divided into three types.
First, there is what might be called the pure Bohm-Bawerkian attack,
which starts unambiguously from the standpoint of the marginal
utility theory o f value. This type of attack recognises that a theory
of value o f some sort must lie at the foundation of any general theore­
tical system in economics, but complains that Marx has chosen an
invalid theory which does not square with the facts and does not
penetrate sufficiently below the surface,2 and that his whole system
therefore falls to the ground. The second type o f attack accepts the
same view about the necessity for some sort o f theory o f value, and
agrees that Marx’s theory o f value is invalid, but does not accept the
view that his whole system falls to the ground because o f this. In the
opinion o f some of the critics who make this type o f attack, a number
of Marx’s leading propositions still remain true (at least in substance)
when the labour theory o f value is replaced by or reconciled with the
marginal utility theory. In the opinion of others, Marx’s theory o f
value, although technically invalid, performs a special role in Marx’s
system quite different from that which other theories o f value play
in their systems. The third type o f attack rejects the view that a theory
o f value (at least in the traditional sense of that expression) is necessary
at all, and concentrates on demonstrating that the labour theory is a
useless excrescence upon Marx’s system. At the worst it is a mere
Hegelian mystification, and at the best it makes no statement which
is not made by the leading propositions of the materialist conception
o f history.
These three types o f attack, of course, do not exist in separate
1 The development of the labour theory in the U S.S.R. is dealt with in the following
chapter.
2 The Bohm-Bawerkians often complain of the Marxist theory in terms which are
rather similar to those in which the Marxists complain of the Bohm-Bawerkian theory.
Each argues that the other does not penetrate below the surface to the “ real” or “ultimate”
determinant or motive force in society. But in the Marxist view this determinant is the
social relations entered into between men and men in the production of commodities,
whereas in the Bohm-Bawerkian view it is the mental relations between individual
men and the finished goods which they demand and consume.
204 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

watertight compartments. The second is in a sense a variant o f the

dependent o f the labour theory is common to the second and third.

And some critics do not confine themselves to any one o f these
approaches, but use arguments appropriate to two or even all three o f
them. The more intelligent critics, however, have generally adopted
an approach which is fairly distinctly aligned with one, and one only,
o f the three which I have distinguished, and in what follows I shall
deal in turn with writers whose main arguments seem to me to be
typical o f each standpoint.

2. Pareto9s Critique
So far as the first type o f critique is concerned, I have perhaps said
enough in the preceding chapters about Bohm-Bawerk’s approach
to render any further detailed reference to his own work unnecessary.
But it might be useful to say a little about the attitude o f Pareto,
whose attack upon Marx1 can most conveniently be regarded as the
Lausanne variant o f Bohm-Bawerk’s. Although Pareto’s critique is
rather similar in content to Bohm-Bawerk’s, it is on the whole much
less competent.2 All too often sneers about the religious character
which Marx’s work has allegedly assumed in the eyes o f his followers
take the place o f reasoned criticism. And all too often the imaginary
Marxists with whom Pareto argues are made to put forward inter­
pretations o f the labour theory which are suspiciously simple-minded.
It is not very difficult, for example, to show that the “ Marxist” method
o f reducing skilled to simple labour is absurd when the “ Marxists”
are made to say that the reduction can be effected simply by referring
to the values o f the products.3 And it is easy enough to show that the
labour theory does not apply to rare pictures, etc.,4 since (as Pareto
well knew) it was never intended to apply to anything other than
freely reproducible goods.5 Nor is it sufficient, when the Marxist
characterises as exceptional the case o f the picture whose price increases
when its painter becomes famous without anything having happened
to the quantity o f labour embodied in it, to reply that it is by no means
1 P a r e t o ’ s m a i n m ' t in 's m s o f M a n e a r e r n n t a i n e d i n h is introduction Extracts from
Karl Marx's “ Capital” (Paris, 1893), and in a special section of his Les Systtmes Socialistes
(Paris, 1902). The quotations from the latter work appearing below are from the 2nd
edn. of 1926, edited by G.-H. Bousquet.
2 Cf., per contra, T. W . Hutchison, A Review of Economic Doctrines, p. 228.
8 Les Systbnes Socialistes, Vol. II, pp. 381-2. 4 Ibid., Vol. II, pp. 377-9.
6 Cf. Extracts, p. xxiii, footnote.
 C R I T I Q U E OF THE L A B O U R T H E O R Y 205

exceptional because the prices o f all commodities may vary without

e.g., on account o f a change in the tastes and incomes o f their con­

sumers.1
From the main body o f Pareto’s critique we may select three
arguments which are typical o f the general character of the critique as
a whole. The first o f these relates to Marx’s statement that “ however ...
productive power may vary, the same labour, exercised during
equal periods o f time, always yields equal amounts o f value” .2 This
implies, o f course, that if the productivity o f labour in, say, the tailor­
ing industry is doubled, so that two coats can be produced with the
same expenditure o f labour as was previously necessary to produce
one, then “ two coats are only worth as much as one was before” .8
Now Marx also says that means of production “ never transfer more
value to the product than they themselves lose during the labour-
process by the destruction o f their own use-value” .4 If this were in
fact so, Pareto asks, why should a manufacturer ever wish to introduce
a new machine designed to increase productivity, since the only
result would be that the unit value of the commodity produced would
fall in proportion to the increase in productivity? One way o f explain­
ing his action in introducing such a machine, Pareto argues, would be
to say that it is only when prices have reached a stable equilibrium
level that the machine does not transfer more value than it itself loses
during the labour process. But since prices do not reach this level
immediately after the introduction o f a new machine,
“ there will be a certain lapse o f time during which the value trans­
ferred will be greater than the depreciation (usure) of the machine,
i.e., during which the simple capital which it represents will pro­
duce a certain value, and it is this surplus o f value which serves as the
reward which stimulates the producer to employ the machine.” 6
But if we take this line, Pareto continues, it is a case o f out o f the
frying pan into the fire. If capital can produce exchange value during
the period when prices have not reached their stable equilibrium
level, it can always produce it, “ for this stable equilibrium o f prices
is a pure abstraction, which does not exist in nature” . Therefore, if
1 The Marxist (and Classical) reply to this, of course, is that the long-run equilibrium
prices o f freely reproducible commodities (as distinct from their day-to-day market
prices) will not in fact be affected by a change in demand unless it is accompanied by a
change in the conditions o f production.
2 Capital, Vol. I, pp. 13-14. 3 Ibid., Vol. I, p. 13.
4 Ibid., VoL I, p. 186. 6 Extracts, p. xlvii.
20 6 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

we are going to argue on the assumption that the exchange value o f a

commodity is proportionate to the quantity o f socially-necessary
labour required for its production, we must also assume that this
phenomenon o f capital producing surplus value either does not exist,
or is of no more than negligible importance. And we shall then have
to admit that the manufacturer would have no incentive to introduce
a new machine designed to increase productivity.1
If it were normally the case that the new machine were introduced
simultaneously in all firms in the industry,2 it is perfectly true that one
might well have to consider the problem o f incentive in terms o f a
temporary discrepancy between market and equilibrium prices. But it
would not follow even then that the surplus profits received could be
explained only in terms o f the production of exchange value by the
new machine; and even if we accepted such an explanation in this
particular case o f a discrepancy between market and equilibrium
prices, it would certainly not follow that because the equilibrium
price was never actually reached capital could always produce exchange
value. However, Pareto’s argument is academic as well as illogical,
since in actual fact the new machine would not normally be introduced
simultaneously in all firms in the industry. It would be introduced
first by one or a few firms in an endeavour to steal a march on their
competitors. The explanation o f this process given by Marx himself,
which does not assume the existence at any time o f any divergence
between value and price, seems quite satisfactory. “ The real value of a
commodity” , Marx writes, “ is . . . not its individual value, but its
social value; that is to say, the real value is not measured by the labour­
time that the article in each individual case costs the producer, but
by the labour-time socially required for its production.” 3 Thus an
individual capitalist who introduces a new method which increases
the productivity o f labour in his establishment will be able, for a time,
to sell his commodity above its individual value, thereby obtaining
an extra surplus value. “ The exceptionally productive labour” ,
Marx writes, “ operates as intensified labour; it creates in equal periods

1 Extracts, pp. xlvii-xlix.

2 Pareto discusses the problem in the setting o f “ a society without appropriated capital’*,
in which it is decreed that all exchanges should take place in accordance with quantities
of embodied labour (ibid., p. xlv). In such a society, it might in fact normally be the case
that a new machine would be introduced simultaneously in all firms in the industry.
But Pareto quite clearly intends the conclusions he reaches from an examination of the
problem in this special setting to be applicable to an ordinary capitalist society (see, e.g.,
ibid., p. lx).
8 Capital, Vol. I, p. 306.
 C R I T I Q U E OF THE L A B O U R T H E O R Y 207

of time greater values than average social labour o f the same kind.” 1

generally applied in the industry, “ the difference between the indivi­

dual value o f the cheapened commodity and its social value” will
disappear, and the extra surplus value received by the original inno­
vator will be squeezed out.
The argument I have just considered was framed by Pareto in 1893,
prior to the appearance o f Volume III o f Capital The second and third
arguments which I wish to consider were put forward in 1902, and
relate to the alleged “ contradiction” between Volume I and Volume
III. The second argument is as follows: From the statements at the
beginning o f the first chapter o f Volume I o f Capital, says Pareto,
it is perfectly clear that
“ the fundamental proposition o f Marx’s work, the proposition
which establishes the equality between the measure o f value and the
quantity o f labour, is demonstrated precisely for a ratio o f exchange
(1 quarter o f com =d kilos o f iron), that is, for a price, if in this
example the iron is regarded as money. If now there is another
value which does not coincide with prices, there is nothing to indi­
cate that the preceding demonstration can be applied to it, and
consequently we cannot know whether or not it is crystallised
labour. Marx demonstrates a proposition for a particular entity
and applies it to another.” 2
In Volume III, Pareto proceeds, Marx lays down three conditions
which have to be fulfilled if the prices at which commodities are
exchanged are to correspond approximately with their values:
“ (1) The exchange o f the various commodities must no longer be
accidental or occasional; (2) So far as the direct exchange o f com­
modities is concerned, these commodities must be produced on
both sides in sufficient quantities to meet mutual requirements,
a thing easily learned by experience in trading, and therefore a
natural outgrowth o f continued trading; (3) So far as selling is
concerned, there must be no accidental or artificial monopoly
which may enable either o f the contracting sides to sell commodities
above their value or compel others to sell below value. An accidental
monopoly is one which a buyer or seller acquires by an accidental
proportion o f supply to demand.” 3
This is all very well, Pareto argues, but nobody warned us about
these essential conditions when the equation “ 1 quarter o f com = a
1 Capital, Vol. I, pp. 307-8. 2 Les Systkmes Socialistes, Vol. II, pp. 354-5.
3 Capital, Vol. Ill, p. 209.
208 s tu d ie s in th e l a b o u r t h e o r y o f v a lu e

kilos o f iron’* was put forward, and it is by reasoning exclusively

from this equation, without any other conditions, that Marx demon-
strates (or believes that he demonstrates) that value is crystallised labour.
Once this demonstration has been made, we cannot introduce into it
new conditions which are not included in the original statement.
Then again, what does Marx’s second condition mean? Either it
means that “ requirements” are fixed (which is not true) or are assumed
by hypothesis to be fixed (which is not legitimate); or it means simply
that we have returned at last to the old law o f supply and demand.
Having started out by rejecting this law and affirming that value is
nothing but crystallised labour, our theory is now reduced to the
proposition that value is measured by labour provided that the condi­
tions laid down by the law o f supply and demand are satisfied. Thus
“ we see that it is always the same process o f reasoning. "When certain
circumstances get in our way we suppress them by hypothesis9 doing
our best to make this hypothesis pass for reality.” 1
At bottom, this is a criticism o f Marx’s economic method, which
has already been commented upon fairly extensively above. What
Pareto says, in effect, is that it is illegitimate to begin by postulating
embodied labour as the substance o f value, to go ahead and base
one’s system on this proposition, and then subsequently to make it
clear that exchange ratios are actually equal to embodied labour ratios
only when supply is equal to or balanced by demand. Exchange
ratios are in fact determined by a whole crowd o f factors, o f which
embodied labour is one and the relation o f supply and demand is
another. It is easy enough to “ prove” that exchange ratios are deter­
mined by one o f these factors alone i f you simply assume that the other
factors do not vary. And according to Pareto this is in fact all that
Marx does.
But this criticism is surely not valid in the case o f an economist
who sets out quite consciously, as Marx did, to frame a theory o f value
which will apply not to all exchange ratios under all conditions but
only to equilibrium exchange ratios under conditions o f free competi­
tion. Marx’s theory o f value, like Ricardo’s, was designed to explain
nothing more than the level at which supply and demand tended to

I think, writing in 1867, to take it for granted that his readers would
understand from the beginning that this was his purpose.2 There is
1 Les Systbnes Socialistest Vol. U, pp. 358-9.
2 In bis more popular expositions Marx makes the point perfectly dear. See, e.g.,
Value, Price and Profit (in Selected Works, VoL I, pp. 310-11).
 C R I T I Q U E OF THE L A B O U R T H E O R Y 209
certainly nothing in Volume I o f Capital, whether in the “ equations”
which Pareto mentions or elsewhere, to suggest that he ever intended
anything else. Marx began, as did Ricardo, by postulating that ex­
change ratios were determined by embodied labour ratios, but this
postulate, naturally enough, was not unrelated to the task which the
law based upon it was designed to perform. Had Marx wished to
develop a “ law of value” which would explain all exchange ratios
under all conditions he would clearly not have been able to begin
with the same postulate. Much o f the confusion which has arisen on
this point is due to a difference between Ricardo’s terminology and
that o f Marx. As we have seen, Ricardo usually identified the “ value”
o f a commodity with its equilibrium price, and argued that relative
“ values” in this sense were determined by relative quantities of
embodied labour. Marx, on the other hand, defined the “ value” o f a
commodity as the quantity o f labour embodied in it, and argued that
relative equilibrium prices were determined by relative “ values” in
this sense. In essence, both economists were laying down the same
proposition; but Marx’s terminology, being less familiar, is more
liable to misinterpretation.
The third argument is as follows: In Volume I, Pareto writes,
Marx assumes that the amount o f profit which each capitalist receives
(given the rate o f exploitation) is uniquely dependent upon the quantity
o f variable capital which he employs. In Volume III, on the other hand,
Marx tells us that in actual fact each capitalist shares in the social
“ pool” o f profit in accordance with the total quantity o f capital
which he employs. How then does he resolve this apparent contradic­
tion? Pareto’s answer is somewhat surprising. Marx, he says, argues
that “ under the pressure o f competition” the organic composition
o f all capitals tends towards the average, so that it is roughly equal
in all branches o f production. Thus “ it amounts to exactly the same
thing whether we say that the surplus value which the capitalist
appropriates is proportionate to the variable capital which he employs,
or that it is proportionate to the fraction o f social capital which he
puts into operation.” 1
In actual fact, o f course, Marx does not argue in this way at all.

of surplus value into profit (and hence o f values into prices of produc­
tion) which Marx dealt with in Volume III arises precisely because
“ the pressure o f competition” does not tend to equalise organic
1 Les Systbnes Socialises, Vol. II, p. 369.
2 10 S T U D I E S I N THE L A B O U R T H E O R Y OF V A L U E

compositions. However, Pareto has unearthed a “ proof” of his inter­

pretation in the shape o f a single sentence from chapter 10 o f Volume
ID of Capital At the beginning o f this chapter, Marx draws attention
to the fact that “ one portion o f the spheres o f production has an
average composition o f their capitals, that is to say, their capitals
have exactly or approximately the composition o f the average social
capital” . In these spheres o f production, the prices o f production o f
commodities coincide exactly or approximately with their values
as expressed in money. “ Competition” , Marx proceeds, “ distributes
the social capital in such a way between the various spheres of produc­
tion that the prices o f production o f each sphere are formed after the
model o f the prices o f production in these spheres o f average composi­
tion, which is . . . cost-price plus the average rate o f profit multiplied
by the cost-price.” Since this average rate o f profit is simply the
percentage o f profit in the sphere o f average composition, where
profit is identical with surplus value, the rate o f profit is the same
in all spheres o f production “ It is evident” , Marx writes, “ that the
balance between the spheres o f production o f different composition
must tend to equalise them [i.e., put them on an equal footing in this
respect— R.L.M.] with the spheres o f average composition.” This
argument is then repeated, in a slightly different way, in the following
paragraph:
“ In the case o f capitals o f average, or approximately average,
composition, the price o f production coincides exactly, or approxi­
mately with the value, and the profit with the surplus-value pro­
duced by them. All other capitals, o f whatever composition, tend
toward this average under the pressure o f competition. But since the
capitals o f average composition are o f the same, or approximately
the same, structure as the average social capital, all capitals have
the tendency, regardless o f the surplus-value produced by them,
to realise in the prices o f their commodities the average profit,
instead o f their own surplus-value, in other words, to realise the
prices o f production.” 1

Pareto tears the second sentence o f this paragraph from its context,
interprets it to mean that competition tends to equalise all organic
compositions, and affirms that this was Marx’s solution o f the “ contra­
diction” . But it is perfectly clear from the context that Marx is here
simply repeating the idea, which he has just expressed immediately
before, that competition brings it about that prices in all spheres are
1 Capital, Vol. HI, pp. 204-5.
 C R I T I Q U E OF THE L A B O U R T H E O R Y 2 11

formed after the model o f prices in the spheres o f average composition.

precedes and everything which follows the disputed sentence,1 is

clearly quite mistaken. The most charitable conclusion to which
one can come is that Pareto, in spite o f his extremely arrogant tone,2
had simply not attempted to understand Marx’s argument in Part 2
o f Volume III.

3. Bernsteins Critique
I pass now to the second type o f attack distinguished above, dealing
first with those critics who have endeavoured to improve Marx’s
system either by replacing the labour theory by the marginal utility
theory or by “ reconciling” the two theories. The most conspicuous
upholders o f this view were the so-called revisionists, who set the tone
for much o f the subsequent criticism o f Marx. The name “ revisionists”
is something o f a misnomer: it appears to imply that these critics
were concerned merely to re-examine the Marxist system with a
view to amending relatively minor faults. In actual fact, it is more
correct to regard the revisionist movement, in effect if not in intention,
as the continental counterpart o f the Fabian movement in Britain—
i.e., as a revolt against Marxism rather than a “ revision” o f it.8 This is
1 One need look no further than the same page for evidence o f this inconsistency. In
the last sentence but one before the disputed sentence, Marx speaks of the way in which
equal masses o f capital, “ whatever may be their composition” , receive aliquot shares
o f the total surplus value; and in the sentence which immediately follows the disputed
one the phrase “ regardless o f the surplus-value produced by them” shows clearly that no
amendment of this basic notion was intended.
2 “It is true” , Pareto writes (not uncharacteristically), “ that the exegesis of the experts
can always have recourse to the argument that Marx, when he said that ‘all other capitals
o f whatever composition, tend toward this average’, really meant to say that they did not
tend at all toward it. Perhaps, who knows, he did not even want, in these passages, to
put forward a theory of the composition o f capitals; perhaps he did not want to put
forward a theory of value. Nothing is impossible. It has been discovered that the Iliad
was a prophecy about the coming o f the Messiah, and that Dante’s Divine Comedy was a
kind o f cryptography for the use o f the Gbibellines. Similar discoveries can be made
in the work o f Marx. It is clear that if one admits that words can change their meaning
entirely, interpretation has no longer any limits” (Les Systimes Socialistes, pp. 370-1).
3 Sweezy, in an interesting essay on Fabian Political Economy (reprinted in The Present
as History, 1953), draws attention (pp. 319-20) to the fact that the relation between Fabian­
ism and revisionism was rather more direct than is generally appreciated. He quotes the
following passage from The History of the Fabian Society by E. R . Pease: “TTae revolt

by Bismarck, took refuge in London, and was for years intimately acquainted with the
Fabian Society and its leaders. Soon after his return to Germany he published in 1899
a volume criticizing Marxism and thence grew up the Revisionist movement for free
thought in Socialism which has attracted all the younger men, and before the war [World
War I] had virtually, if not actually, obtained control over the Social Democratic Party.
In England, and in Germany through Bernstein, I think the Fabian Society may rlaim
to have led the revolt.”
212 S T U D I E S IN THE L A B O U R T H B O R Y OF V A L U E

certainly true o f the revisionist attitude towards the labour theory

looked upon as the leader o f the movement, can perhaps be regarded

as typical.
Bernstein’s essay “ On the Meaning o f the Marxist Theory o f
Value” , reprinted in his famous book D ie Voraussetzungen des Sozialis-
mus und die Aufgaben der Sozialdemokratie,* sets out the main line o f
approach which he adopted in all his writings on this subject.® Marx,
says Bernstein, begins by stating that the value o f commodities consists
in the socially-necessary labour spent on them, measured according
to time. But “ with the analysis o f this measure o f value quite a series
o f abstractions and reductions is necessary” , as a result o f which (at
least so far as “ single commodities or a category o f commodities”
are concerned) “ value loses every concrete quality and becomes a
pure abstract concept” . But what becomes o f the Marxian theory
o f surplus value under these circumstances? It is evident, Bernstein
argues, “ that at the moment when labour value can claim acceptance
only as a speculative formula or scientific hypothesis, surplus value
would all the more become a pure formula— a formula which rests
on an hypothesis” .3 One cannot escape, as Engels tried to do, by
arguing that the law o f value had a general historical validity from
the beginnings o f commodity exchange to the beginnings o f capital­
ism,4 since a whole series o f facts (“ feudal relations, undifferentiated
agriculture, monopolies o f guilds, etc.” ) “hindered the conception o f a
general exchange value founded on the labour time o f the producers” .5
The “ fact o f surplus labour” , however, was much clearer during
this early period than it is today, and even on the threshold o f the
capitalist period this clarity still prevailed. On the basis o f the new
theory o f labour as the measure o f value, Adam Smith was able to
represent profits and rent as deductions from labour value. But with

1 The quotations below are taken from the English translation o f this work which was
published (under the title Evolutionary Socialism) by the Independent Labour Party in
1909.
2 For other commentaries on Bernstein's critique o f the Marxian system, see Robert
Guihćneuf, Le ProbUme de la Thioric Marxiste de la Valeur (1952); William J. Blake,
Elements of Marxian Economic Theory and its Criticism (1939); Louis B. Boudin, The Theore­
tical System of Karl Marx in the Light of Recent Criticism (1915); and Paul M. Sweezy,
The Theory of Capitalist Development (1946).
8 Evolutionary Socialism, pp. 28-30.
4 Engels on “ Capital” , pp. 101 ff. It should be noted that Engels claimed validity for
the law o f value only so far as commodities were concerned, and, as he put it, only "to
the extent that economic laws are valid at all" {ibid., pp. 105-6).
6 Evolutionary Socialism, pp. 30*1. Cf. above, pp. 199-200, and below, pp. 288 f f
 C R I T I Q U E OF THE L A B O U R T H E O R Y 213

Smith “ labour value is already conceived as an abstraction from the

o f society” ; and “ labour value serves Smith only as a ‘concept* to

disclose the division o f the products o f labour— that is the fact o f
surplus labour” . And “ in the Marxist system it is not otherwise in
principle” .1 In Volume III o f Capital “ the value o f individual com­
modities or kinds o f commodities becomes something quite secondary,
since they are sold at the price o f their production— cost o f production
plus profit rate. What takes the first place is the value o f the total
production o f society, and the excess o f this value over the total amount
o f the wages o f die working classes— that is, not die individual, but
the total social surplus value.” But “ the amount o f this surplus value
is only realised in proportion to the relation between the total pro­
duction and the total demand— i.e., the buying capacity o f the market.”
Thus taking production as a whole,

“ the value o f every single kind o f commodity is determined by the

labour time which was necessary to produce it under normal
conditions o f production to that amount which the market— that
is the community as purchasers— can take in each case.2 N ow just
for the commodities under consideration there is in reality no exact
measure o f the need o f the community at a given moment; and thus
value conceived as above is a purely abstract entity, not otherwise
than the value o f the final utility o f die school o f Gossen, Jevons,
and Bohm-Bawerk. Actual relations lie at the foundation o f both;
but both are built up on abstractions.” 8

The Marxian concept o f value, then, according to Bernstein, is “ nothing

more than a key, an abstract image, like the philosophical atom
endowed with a soul” — a key which in Marx’s hands has “ led to the
exposure and presentation o f the mechanism o f capitalist economy
as this had not been hitherto treated, not so forcibly, logically, and
clearly” , but which in the hands o f Marx's disciples has nearly always
1 Evolutionary Socialism, pp. 31-3.
2 Bernstein’s point here is related to a question which, as he says, was “ passionately
discussed” by Marxists prior to the appearance o f Volume III— “whether die attribute
o f ‘socially necessary labour time* in labour value related only to the manner o f the pro­
duction o f the respective commodities or included also the relation o f the amount pro­
duced o f these commodities to effective demand’*. Volume IH, according to Bernstein,
“ gave quite a different complexion to this and other questions, forced it into another
region, on to another plane” (p. 33).
3 Ibid., p. 34. C£ p. 36, footnote, where Bernstein argues that a passage from Volume
m o f Capital, p. 74s (quoted above, p. 179) “ makes it impossible to make light o f the
Gossen-Bohm theory with a few superior phrases.”
214 ST U D IE S IN TH E L A B O U R T H E O R Y OF V A L U E

led to disastrous results, since it “ refuses service over and above a

the empirical fact o f surplus labour. But this is a fact which is “ demon­
strable by experience” and “ needs no deductive proof” . Thus “ whether
the Marxist theory is correct or not is quite immaterial to the proof
o f surplus labour. It is in this respect no demonstration but only a
means o f analysis and illustration.” 2
In Bernstein’s view, then, if I have interpreted his extremely diffuse
argument correctly, Marx’s “ value” is a “ pure abstract concept” ,
quite incapable o f serving as the basis for an adequate theory o f
exchange ratios. It must therefore be either replaced or supplemented
by the marginal utility theory.3 But the “ proof o f surplus labour” ,
fortunately, does not depend upon the correctness or otherwise o f the
Marxist theory of exchange ratios. The fact that some people live
on the labour o f others is a simple fact o f experience, which needs
no theory o f value to prove it. In the analysis and illustration o f this
fact of experience, however, the Marxian concept o f value as embodied
labour can usefully be employed as a sort o f expository device.
It is certainly true that the Marxian theory o f exchange ratios, like
all such theories, is based on an “ abstract concept” , and that it coincides
only approximately with reality. But this fact in itself does not prevent
it from being an adequate theory, since it is o f the very nature o f all
concepts that they should coincide only approximately with reality.4
Nor does it seem to me that the suggestion that “ socially-necessary
labour” includes the relation o f supply to effective demand is any more
true when we consider the totality o f commodities than when we
1 Evolutionary Socialism, pp. 38-9. 2 Ibid., p. 35.
3 Bernstein does not make clear the exact nature o f the amendments which are required.
(Cf. Guihćneuf, op. cit., p. 133.) Lenin*s statement that the revisionists had contributed
nothing to the theory of value “apart from hints and sighs, exceedingly vague, for
Bohm-Bawerk” (Selected Works, Vol. XI, p. 708) is certainly true o f Bernstein.
4 “ The reproaches you make against the law of value” , wrote Engels to Schmidt in
March 1895, “apply to all concepts, regarded from the standpoint o f reality. The identity
o f thought and being, to express myself in Hegelian fashion, everywhere coincides
with your example o f the circle and the polygon. Or the two o f them, the concept o f a
thing and its reality, run along side by side like two asymptotes, always approaching
each other and yet never meeting. This difference between the two is the very difference
which prevents the concept from being, forthwith and immediately, reality, and reality
from being immediately its own concept. Though a concept has the essential nature o f a
concept and cannot therefore prima facie coincide with reality forthwith, from which it
must first be abstracted, it is still something more than a fiction, unless you are going to
declare all the results o f thought fictions because reality has to make a long detour before
it corresponds to them, and even then only with asymptotic approximation” (Engels
on “ Capital” , pp. 137-8). Cf. ibid., p. 100: “ The law of value has a far greater and more
definite significance for capitalist production than that o f a mere hypothesis, not to
mention a fiction, even though a necessary one.”
 C R I T I Q U E OF THE L A B O U R T H E O R Y 2 15

consider individual commodities3— in which case the fact that “ there

moment’* cannot properly be adduced as a factor removing the law

o f value one stage further from reality. Then again, while it is perfectly
true that the existence o f unearned income is a fact o f experience
which needs no theory o f value to prove it, it does not by any means
follow that a theory o f distribution can do without a theory o f value.
A “ theory o f distribution” which said only that unearned income was
the fruit o f the surplus labour o f those employed in production
would hardly qualify as a theory at all; and the mere fact that it ex­
pressed input and output in terms o f embodied labour would not make
it any more likely to qualify as one. At the best, such a “ theory”
could be little more than a generalised description o f the appropriation
by the owners of the means o f production, in all types o f class society,
o f the product o f the surplus labour o f the exploited classes. But
surely there are two salient points which a theory o f distribution
appropriate to our own times should concentrate on explaining:
First, how is it that unearned incomes continue to be received in a
society in which the prices o f the great majority o f commodities
are determined on an impersonal market by the forces o f supply and
demand, and in which the relation between the direct producer
and his employer is based on contract rather than on status? And
second, how are the respective shares o f the main social classes in the
national income determined in such a society? Unless one is content
to rely on some sort o f explanation in terms o f “ force” or “ struggle”
(in which case again one could only with difficulty speak o f a theory
o f distribution), it is impossible to give adequate answers to these
questions without basing one's account on a theory o f value.2

4. The Critiques o f Lindsay and Croce

Something must now be said about those critics who argue that the
labour theory o f value, although invalid when considered as a theory
o f actual market prices, performs a special role in Marx's system
quite different from that which other theories o f value perform in
1 See above, pp. 167-8 and 178-9.
2 Cf. the interesting comments made by Croce on a book by Graziadei, who also
apparently proposed “ to examine profits independently of the theory o f value.*’ The
fallacy o f such a course, Groce maintains, “ ought to be clearly evident at a glance, without
its being necessary to wait for proof from the results of the attempt. A system of economics
from which value is omitted, is like logic without the concept, ethics without duty, aesthetics
without expression. It is economics. . . cut off from its proper sphere” (Historical Material­
ism and the Economics of Karl Marxt London, 1914, p. 138).
21 6 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

theirs. Some critics, for example, o f whom Lindsay may perhaps be

taken as typical, have suggested that the labour theory o f value is
primarily a theory o f natural right rather than a theory o f prices.
It is true, Lindsay agrees, that the labour theory o f value “ claims to be
in some degree at least a theory o f how market prices are determined.
But the careful reader will soon find out that the market prices so
explained are not actual existing prices, but the prices which would
prevail under highly abstract conditions.” 1 These assumed conditions
are those which would prevail in a society so organised that things
would fetch what they were “ really” worth— a society, that is,
“ where a man gets what he is worth” . The labour theory, in other
words, is “ concerned not with actual but with ideal prices” ; it is
“ primarily interested in what a man ought to get in reward for
his labour” .2
One difficulty standing in the way o f this interpretation has to be
disposed o f by Lindsay at the outset. If the labour theory was for
Marx a “ natural rights theory” , just as it was for the individualists,
how does this square with the fact that Marx’s economic method
was “ historical” in character? “ A natural rights theory and historical
method” , says Lindsay, “ do not go well together.” 3 Lindsay’s answer
is based upon an interpretation o f part o f the following sentence in
chapter i o f Capital: “ The secret o f the expression o f value, namely,
that all kinds o f labour are equal and equivalent because, and so far as,
they are human labour in general, cannot be deciphered until the notion
o f human equality has already acquired the fixity o f a popular prejudice.***
This shows, according to Lindsay, that “ the labour theory o f value
was the application to economics o f the principle o f human equality” .
N ow “ Marx’s case for the inevitable transformation o f capitalism
into collectivism entirely depends upon the assumption that the
notion o f human equality will be strong enough to overcome the
inequalities produced by the buying and selling o f labour power” .
Thus Marx “ is able at one and the same time to use the labour theory
1 A. D. Lindsay, Karl Marx’s “ Capital” (London, 1925), pp. 57-8.
2 Ibid., p. 61. (My italics.) 8 Ibid., p. 66.
4 Capital, Vol. I, p. 29 (my italics). The sentence occurs in the course of a comment
on Aristotle's failure to see that “to attribute value to commodities, is merely a mode
o f expressing all labour as equal human labour, and consequently as labour o f equal
quality**. Greek society, says Marx, “ was founded upon slavery, and had, therefore, for
its natural basis, the inequality of men and their labour powers” . The “ deciphering**
mentioned in the sentence quoted in the text “is possible only in a society in which the
great mass of the produce of labour takes the form o f commodities, in which, con­
sequently, the dominant relation between man and man, is that o f owners o f com­
modities.**
 C R I T I Q U E OP THE L A B O U R T H E O R Y 217

o f value as a natural rights theory and as an account o f what is actually

happening, because the claim o f right which the theory embodies
is one o f the elements operative in the actual situation which he,
as an economic historian, is describing” .1
Marx’s statement o f the theory in the first six chapters o f Capital,
according to Lindsay, although it is taken over from that o f his
“ individualist” predecessors, differs in at least one important respect
from theirs— in Marx’s “ insistence that [the labour which creates
value] must be socially necessary labour, and his reiterated statement
that value is a social product” .2 The concept o f social necessity “ trans­
forms the labour theory o f value into something not unlike the ordin­
ary theory o f the interplay o f supply and demand” , since the quantity
o f labour “ socially necessary” for the production of a commodity
depends (inter alia) upon the varying success with which the producers
have “ anticipated the amount and the kind o f the demand for com­
modities” .3 And the idea that “ value is a social product and comes
into being only as a result o f all the processes necessary to the pro­
duction o f wealth in society” allegedly takes Marx further and further
away from “ the conception o f the individual labourer stamping
value on his commodity [,] so much value for every minute o f work” .4
Marx’s “ main discovery” , in fact, was “ that value was a social product,
and that in that social product the social relations involved in produc­
tion are as important as, but essentially different from, the social
relations involved in exchange” .5 In modem society, the economic
unit which makes and exchanges commodities is no longer the indivi­
dual labourer, but what Marx calls the “ collective labourer” — i.e.,
a group o f labourers, o f different specialities, involved in a series of
integrated processes.6 This means, according to Lindsay, that

“ some o f the value produced is produced by the association, not

by its separate members, and the attempt to represent the price o f
the commodity as an amount o f separate values created by the
labour o f the separate individuals concerned must break down.
Some at least of the total value is created in common and, on the
principle o f justice which inspired the labour theory o f value,
ought to find a common, not a distributed reward. The labour
theory o f value and Marx’s doctrine that value is a social product
1 Lindsay, op. c i t p. 66. 2 Ibid., p. 71.
3 Ibid., p. 79. I omit here Lindsay’s consideration o f the question o f the reduction of
skilled to unskilled labour, which is based on the familiar assumption that Marx “look[s]
up the answer at the end of the book, and then cook[s] the sum to fit” (p. 75).
4 Ibid., p. 78. 6 Ibid., p. 95. 3 See Capital, Vol. I, pp. 333 &
218 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

are not really consistent with one another. Once the latter doctrine
is taken seriously, the assumptions essential for the former no longer
hold. The labour theory o f value, regarded as a principle for deter­
mining the just reward o f individuals, ends, like the good dialectical
principle that it is, in transcending itself, in showing that there
cannot be justice for individuals unless their claim to be regarded
as separate individuals, each with an absolute right to a definite
reward, is given up.” 1

Thus the claim o f right which the individualistic theory o f value

embodies “ can only be realized according to Marx when the anarchy
o f individualism is exchanged for a true society” .2
In view o f the number o f occasions on which Marx insisted that
the labour theory was actually “ the scientific expression o f the
economic relations o f present-day society” , and not “ the regenerating
formula o f the future” which Proudhon and others were claiming
it to be,3 it is surprising that so little evidence is offered by Lindsay
to support the view that Marx in fact meant the exact opposite o f what
he so frequently said. One wonders, too, why Marx should have
gone to such trouble to demonstrate that relative quantities o f em­
bodied labour still ultimately determined equilibrium exchange ratios
even under developed capitalism, i f his theory o f value was for him
“ a statement o f the conditions under which the producer would
get his just reward” .4 It is difficult not to feel sympathetic towards
Lindsay’s sincere attempt to make sense out o f an idea which must
have appeared to him at first sight as nonsensical, but it has to be
recognised that his account is based on a whole series o f serious mis­
interpretations. For example, to support his basic idea that Marx’s
labour theory was a “ natural rights theory” , Lindsay lays considerable
stress on a passage in which Marx describes simple commodity pro­
duction as “ a very Eden o f the innate rights o f man” , in which “ alone
rule Freedom, Equality, Property and Bentham” , and in which all
“ work together to their mutual advantage” , in accordance with
“ the pre-established harmony o f things, or under the auspices o f an
all-shrewd providence” .6 Marx could hardly have done more here
than he actually did to warn his readers against taking this obviously
>arently he did not do enough.
Suffice it to say that Marx’s belief in the “ innate rights o f man” , in the
1 Lindsay, op. cit., pp. 106-7. 2 Ibid., p. 117.
3 Marx, The Poverty of Philosophy (English edn.), p. 59.
4 Lindsay, op. cit., pp. 79-80. 6 Capital, Vol. I, p. 155.
 C R I T I Q U E OF THE L A B O U R T H E O R Y 219

“ pro-established harmony o f things” , and in an “ all-shrewd provid­

ence” was scarcely strong enough to warrant the conclusion which
Lindsay draws from this passage. Then again, the passage referred to
above1 where Marx says quite clearly that the discovery o f the law
which regulated the relative exchange values o f commodities could
not precede the development of “ the notion o f human equality”
is interpreted by Lindsay to mean that Marx makes the principle o f
human equality “ a standard operative within the economic facts
themselves” .2 Lindsay's exact meaning here is not quite clear. If he
means that Marx believed that the actual exchange of commodities
in accordance with embodied labour ratios was the result (at least in
part) o f a conscious application o f the principle o f human equality
to the determination o f exchange ratios, then it must be said that this
does not follow at all from what Marx wrote, and is quite inconsistent
with his whole attitude. If, on the other hand, Lindsay means simply
that Marx was here giving overt expression to the view that the
labour theory tells us only under what conditions a commodity will
fetch what it is really worth, then once again this does not follow
from what Marx actually said. To say that a particular economic
law could not have been discovered prior to the development o f a
particular ethico-political concept is by no means to say that the law
itself is an analysis o f what ought to be rather than what is.3
Similarly, Lindsay's interpretations o f the concepts o f socially-necessary
labour and o f value as a social product seem to me to be quite mistaken.
The notion that Marx admitted that the quantity o f socially-necessary
labour required to produce a unit of any commodity was dependent
upon demand conditions has already been sufficiently discussed above.4
And Marx's concept o f value as a social product surely means some­
thing quite different from what Lindsay suggests. Lindsay in effect
takes it to mean that the value o f a commodity is something conferred
upon it not by an individual labourer but rather by the “ collective
labourer” . “ The value-producing qualities, which in the simple
abstract theory o f Locke's theme and the individualists' variation
upon it are concentrated in the individual producer, are in a developed
society distributed. The skill, the foresight, and the direction, which
1 P. aid.---------------------------------------------------------------------------------------------------------
2 Lindsay, op. cit., p. 66. Cf. Engels, Anti-Diihring, p. 119, footnote.
8 The typical situation assumed by Marx is one in which exchange ratios are determined
by the operation of objective economic forces which work independently o f the will
of man, and not by feelings on the part of the individuals concerned as to what constitutes
a “just reward*’ for productive activities.
4 See above, pp. 167-8 and 178-9.
220 ST U D IE S I N THE L A B O U R T H E O R Y OF V A L U E

were once its accompaniment, are now divorced from labour.” 1

which Marx primarily had in mind when he
spoke o f value as a social relation, however, was undoubtedly the
simple relation which exists between commodity producers as such—
in other words, the relation lying behind what Lindsay curiously
refers to as the “ very slight social bond” constituted by exchange in a
commodity-producing society.2 And finally, the replacement o f the
individual by the collective labourer does not necessitate any basic
amendment o f the labour theory, any more than does, say, the intro­
duction o f a new machine or any other innovation which results in an
increase in productivity. The collective labourer produces the same
quantity o f value as die individual labourers formerly did in the
same time, but this value is now distributed among a greater output
o f commodities. In other words, when productivity increases the unit
value o f commodities falls.
Croce’s critique o f the labour theory has important elements
in common with that o f Lindsay,8 but seems to me to be very much
more competent. Capital, says Croce, so far as its method is concerned,
is “ without doubt an abstract investigation” — in other words, the
capitalist society studied by Marx is not this or that historically
existing society, but “ an ideal and formal society, deduced from
certain hypotheses, which could indeed never have occurred as actual
facts in the course o f history’ ’, but which “ correspond to a great extent
to the historical conditions o f the modem civilised world” .4 And so
far as its scope is concerned, Marx’s investigation is limited to “ one
special economic system, that which occurs in a society with private
property in capital” . But “ even when these two points are settled,
the real essence o f Marx’s investigation is not yet explained” .6 The
main difficulty arises because Marx began by assuming a proposition
“ outside the field o f pure economic theory” — i.e., “ die proposition
that the value o f the commodities produced by labour is equal to the
quantity o f labour socially necessary to produce them”— and never
expliddy stated the connection between this proposition and the
laws o f capitalist society.6 After reviewing briefly the suggestions
made in this connectionby such writers as Sombart,Schmidt, Engels,

1 Lindsay, op. cit., p. 96. 2 Ibid., p. 101.

3 The important element o f difference is that Croce (inLindsay’s words) “ maintains
that Marx’s theory o f value is economic and not moral” . See Lindsay’s preface to Croce's
Historical Materialism and the Economics of Karl Marx (London, 1914), p. xxi. Croce’s
main statement on this point will be found on pp. 58-9.
4 Croce, op. cit., p. 50. B Ibid., pp. 50-1. 8 Ibid., pp. 52-3.
 C R I T I Q U E OF T HE L A B O U R T H E O R Y 221
Sorel, and Labriola, Croce summarises his own views as follows:
“ Marx’s labour-value is not only a logical generalisation, it is
also a fact conceived and postulated as typical, i.e. something more than
a mere logical concept. Indeed it has not the inertia o f the abstract
but the force o f a concrete fact,1 which has in regard to capitalist
society, in Marx’s investigation, the function o f a term o f com­
parison, o f a standard, o f a type.
“ This standard or type being postulated, the investigation, for
Marx, takes the following form. Granted that value is equal to the
labour socially necessary, it is required to show with what divergencies
from this standard the prices o f commodities are fixed in capitalist
society, and how labour-power itself acquires a price and becomes a
commodity. To speak plainly, Marx stated the problem in un-
appropriate language; he represented this typical value itself,
postulated by him as a standard, as being the law governing the
economic phenomena o f capitalist society. And it is the law, if he
likes, but in the sphere o f his conceptions, not in economic reality. W e
may conceive the divergencies from a standard as the revolt o f
reality when confronted by this standard which we have endowed
with the dignity o f law.” 2

This method is formally justifiable, Croce continues, but this is not

enough: the standard itself needs justification— “ i.e. we need to decide
what meaning and importance it may have for us” .3 It is absurd to
suggest, as some (e.g., Lindsay) have done, that “ the equivalence
o f value and labour is an ideal o f social ethics, a moral ideal” . Nothing
could be imagined, says Croce, “ more mistaken in itself and farther
from Marx’s thought than this interpretation” .4 The real meaning
o f Marx’s standard is described by Croce as follows:

“ Let us . . . take account, in a society, only o f what is properly

economic life, i.e. out o f the whole society, only o f economic society.
- Let us abstract from this latter all goods which cannot be increased
by labour. Let us abstract further all class distinctions, which-may
be regarded as accidental in reference to the general concept o f
economic society. Let us leave out o f account all modes o f distri­
buting the wealth produced, which, as we have said, can only be

1 Croce adds the following footnote at this point: "It must be carefully noticed that
what I call a concretefact may still not be a fact which is empirically real, but a fact made
by us hypothetically and entirely imaginary, or a fact partially empirical, i.e. existing par­
tially in empirical reality. W e shall see later on that Marx's typical premise belongs
properly to this second class."
* Ibid., pp. 56-7. 8 Ibid., p. 58. 4 Ibid.
222 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

in any case upon considerations belonging to society as a whole,

and never frnrri h^ln-nging PYflmiyply tn prnnnmir
society. What is left after these successive abstractions have been
made? Nothing but economic society in so far as it is a working society.
And in this society without class distinctions, i.e. in an economic
society as such and whose only commodities are the products of
labour, what can value be? Obviously the sum o f the efforts, i.e. the
quantity o f labour, which the production o f the various kinds of
commodities demands. And, since we are here speaking o f the
economic social organism, and not of the individual persons living
in it, it follows that this labour cannot be reckoned except by
averages, and hence as labour socially (it is with society, I repeat, that
we are here dealing) necessary.
“ Thus labour-value would appear as that determination o f value
peculiar to economic society as such, when regarded only in so far
as it produces commodities capable of being increased by labour.
“ From this definition the following corollary may be drawn:
the determination o f labour value will have a positive conformity
with facts as long as a society exists, which produces goods by means o f
labour. . . .
“ . . . But, o f what kind is this conformity? Having ruled out
(i) that it is a question o f a moral ideal, and (2) that it is a question
or scientific law; and having nevertheless concluded that this
equivalence is a fact (which Marx uses as a type), we are obliged to
say, as the only alternative, that it is a fact, but a fact which exists in
the midst o f other facts; i.e. afact that appears to us empirically as opposed,
limited, distorted by otherfacts, almost like a force amongst other forces,
which produces a resultant different from what it would produce
i f the other forces ceased to act. It is not a completely dominant fact
but neither is it non-existent and merely imaginary.” 1

Thus Marx, “ in postulating as typical the equivalence between value

and labour and in applying it to capitalist society, was, as it were,
making a comparison between capitalist society and a part o f itself,
isolated and raised up to an independent existence: i.e. a comparison
between capitalist society and economic society as such (but only
in so far as it is a working society)” .2 It was by virtue of this method
that Marx was able to discover and define the social origin o f surplus
value. “ Surplus value in pure economics is a meaningless word, as is
evident from the term itself; since a surplus value is an extra value,
and thus falls outside the sphere o f pure economics. But it rightly
has meaning and is no absurdity, as a concept o f difference, in comparing
1 Croce, op. tit., pp. (S0-2. 2 Ibid., p. 64.
 C R I T I Q U E OF TH E L A B O U R T H E O R Y 223

one economic society with another, one fact with another, or two
hypotheses with one another.” 1 It was also by virtue o f the same
premise that Marx was able to arrive at the proposition that under
capitalism “ value does not correspond with price” in the great majority
o f cases.2 It follows from all this, according to Croce, that “ alongside
. . . o f the Marxian investigation, there can, or rather must, exist and
flourish a general economic science, which may determine a concept
of value, deducing it from quite different and more comprehensive
principles than the special ones o f Marx.” 3 Nevertheless it must be
admitted that Marx “ teaches us, although it is with statements approxi­
mate in content and paradoxical in form, to penetrate to what society
is in its actual truth” , whereas in the case o f many o f the economic
purists “ concrete reality, i.e. the very world in which we live and
move, and which it concerns us somewhat to know, slips out, un-
seizable, from the broad-meshed net o f abstractions and hypotheses” .4
N ow it is certainly true, and important, that Marx began by con­
sidering commodity-producing society as such, in abstraction from
“ all class distinctions” ; and it is also true that there is a certain sense—
although only a rather tenuous one— in which his subsequent analysis
can be described as a sort o f “ comparison” between this abstract
society and a fully-fledged (though “ ideal”) capitalist society. As I have
suggested above,6 Marx’s enquiry into the way in which the labour
theory operated was in essence an enquiry into the way in which
the basic relation between men as producers o f commodities (a relation
conceived as persisting throughout the whole period o f commodity
production) exerts its influence on relations o f exchange as the capital­
ist economic system succeeds those systems which went before it.
It will be evident, however, that my own interpretation differs in
certain important respects from that o f Croce. It seems to me, for
„ example, that Croce’s analysis o f Marx’s method is fundamentally
defective. Marx’s researches, he says, “ are not historical, but hypo­
thetical and abstract, i.e. theoretical” .6 He finds it “ strange” that Engels
should in one and the same chapter (of Anti-Duhring) state both that
economics in the Marxian sense is “ essentially a historical science”
and that Marx wrote “ theoretical economics” .7 But the two statements
are surely quite consistent with one another when considered in the
1 Croce, op. tit., pp. 64-5. Cf. pp. 125 ff. 2 Ibid., p. 65.
3 Ibid., p. 68. Cf. pp. 76 and 124-5. 4 Ibid., p. 118.
6 Pp. 151 ff. 6 Ibid., p. 67.
7 Ibid., p. 67, footnote. Croce’s quotations from Anti-Diihrittg appear on pp. 165 and
169 o f the English edn. o f the latter work.
224 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

light o f the accounts given by Engels himself o f the logical-historical

method which he and Marx followed.1 Croce’s failure to see this
pervades— and up to a point invalidates— his whole thesis. In particular,
if he had realised that Marx’s logical analysis was intended to be a
sort o f “ corrected mirror-image” o f an actual historical process o f
development, he would not have spoken as if Marx had done little
more than make a mere comparison between the determination o f
value in a “ working society” and in a capitalist society. According
to Croce, Marx postulates “ labour-value” as fundamental, since it is
the determination o f value peculiar to economic society as such
(when regarded only as a “ working society”), and then shows “ with
what divergencies from this standard the prices o f commodities are fixed
in capitalist society” .2 A vital fact is here omitted from consideration—
that Marx not only “ compared” the one form o f society with the
other, but argued that the law o f value which was directly operative
in the first was still indirectly operative in the second. It was not just
a question o f demonstrating that values diverged from prices under
capitalism, but o f showing that the very extent o f these divergencies
was itself determined in terms o f the original theory. In other words,
what was involved was not a logical comparison between values and
prices o f production, but a logical (and historical) transformation o f
values into prices o f production.
Most o f the other criticisms which can be made o f Croce’s inter­
pretation spring from this source. For example, there is his suggestion
that surplus value (a “ meaningless word” , allegedly, in pure economics)
rightly has meaning in Marx’s system “ as a concept o f difference, in
comparing one economic society with another” . The law o f surplus
value, Croce argues, together with the law o f value, the law o f average
profit, etc., are not to be “ looked upon as laws actually working in the
economic world, but as the results o f comparative investigations into different
possible forms o f economic society” .3 If a capitalist society is considered
“ by itself” (“ which is precisely what the pure economists do and ought
to do”), the profits o f the capitalists appear as “a result o f mutual
agreement, arising out of different comparative degrees o f utility” .
You can only assert the “ expropriatory character o f profit” , Croce
1 See, e.g., pp. 148-0 above.______________________________________________
2 “ It is a usual m ethod o f scientific analysis/* writes C roce, “ to regard a phenom enon
not o n ly as it exists, but also as it w o u ld be i f one o f its factors w ere altered, and, in
com paring the hypothetical w ith the real phenom enon, to conceive the first as diverging
from the second, w h ich is postulated as fundamental, or the second as diverging from the
first, w hich is postulated in the same m anner” (p. 57).
2 Ibid., p. 143 *
 C R I T I Q U E OF TH E L A B O U R T H E O R Y 225

argues, when you apply to a capitalist society, “ almost like a chemical

reagent, the standard, which, on the other hand, is characteristic o f a
type o f society founded on human equality” .1 It is true, I suppose, that
when one speaks o f the “ expropriatory character” o f a class income,
meaning thereby to condemn its receipt, one is often implicitly
comparing the state o f affairs in which this income exists with another
state o f affairs in which it does not or would not exist. But it does
not follow from this that the concept o f profit as the product o f
surplus labour is a “ concept of difference” in any sense other than that
in which all concepts can be described as “ concepts o f difference” .2
This concept has been accepted in the past by many thinkers who were
far from “ comparing” (in any special sense o f this word) the state
of society to which it seemed appropriate with any other state o f
society. They looked at capitalism “ by itself” , and saw that certain
people received an income without working for it. If they made any
“ comparison” , it was not between this state o f society and another
in which nobody received any “ unearned” income, but rather between
the situation o f the majority o f people under capitalism (who had to
work for their income) and that o f the minority (who did not). The
feet that the rich lived off the labour o f the poor seemed to them self-
evident— and, incidentally, a matter for congratulation rather than for
condemnation. It is certainly true, as Croce says, that in the “ pure
economics” o f our own times surplus value is a meaningless phrase,
but it has only become so because this “ pure economics” has tended
to abstract from those social relations o f production with which
Classical (and Marxian) political economy began. The concepts o f
profit in “ pure economics” do not differ in status from the concept
o f profit as surplus value: no one o f them is any more a “ concept o f
difference” than any other. If one employs the concept o f surplus
value, one is certainly approaching the phenomenon o f profit from a
point o f view different from that o f the “ pure economists” , but one is
not trying to solve an essentially different problem.

5. ,
The Critiques o f Lange Schlesinger and Joan Robinson
Finally we come to the third type o f critique, which is particularly
fashionable at the present time— the type which rejects the view that a
“ theory o f value” in the Classical, Marxian or Mengerian sense is
1 C ro ce, op. cit., pp. 126-7.
2 T h e concepts o f “ bigness” , “ badness” , “ X-ness” , etc., are “ concepts o f difference”
in the sense that their m eaning is dependent upon an im plicit com parison w ith the con­
cepts “ smallness” , “ goodness” , “ not-X -ness” , etc.
226 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

necessary (whether in Marx’s system or anyone else’s), and which

concentrates on demonstrating that the labour theory, so far from being
the indispensable tool which many Marxists claim it to be, is in fact
a useless and even harmful excrescence upon Marx’s system. It is
admitted by most o f those who adopt this line that Marxian economics
is greatly superior to “ bourgeois” economics in explaining the pheno­
mena o f economic evolution, but this superiority is said to be not at all
due to the “ outdated” labour theory o f value, which is in fact (to
quote Lange) “ the cause o f the inferiority o f Marxian economics
in many fields” .1 It is due rather to what Lange calls “an exact specif­
ication o f the institutional (or, if the reader prefers the expression,
sociological) data which form the framework in which the economic
process works in Capitalist society” .2
Lange’s argument is roughly as follows. The superiority o f Marxian
economics, he claims, is only a partial one. There are some problems
before which Marxian economics is “ quite powerless” , while “ bourge­
ois” economics “ solves them easily” . Clearly the relative merits o f
the two systems belong to different “ ranges” . “ Marxian economics” ,
Lange says, “ can work the economic evolution o f capitalist society
into a consistent theory from which its necessity is deduced, while
‘bourgeois’ economists get no further than mere historical description.
On the other hand, ‘bourgeois’ economics is able to grasp the pheno­
mena o f the every-day life o f a capitalist economy in a manner that is
far superior to anything the Marxists can produce.” 3 Further, “ the
anticipations which can be deduced from the two types o f economic
theory refer to a different range o f time” — Marxism to the long period
and “ bourgeois” economics to the short period. This difference
between the explanatory value o f the two systems o f thought is
accounted for by the fact that modem “ bourgeois” economic theory
is “ essentially a static theory o f economic equilibrium analysing the
economic process under a system o f constant data and the mechanism
by which prices and quantities produced adjust themselves to changes
in these data” . The data themselves, which are psychological, technical
and institutional, are regarded as outside the scope o f economic theory.
Further, “ the institutional data o f the theory are not specified” . In fact,
1 O . Lange, “ M arxian Economics and M o d em Econom ic Theory*’ (Review o f Economic
Studies, June 1935), p. 196. Judging from L ange’s recent article on The Economic Laws o f
Socialist Society in the Light o f Joseph Stalin's Last Work (translated in International Economic
Papers, N o . 4, 1954), it seems likely that he n o longer holds the view s expressed in his
1935 article. T h e latter remains, h ow ever, one o f the best short statements o f an attitude
w h ich has achieved considerable popularity.
* Ibid., p. 189. 3 Ibid., p. 191.
 C R IT IQ U E OF TH E L A B O U R THEORY 227
“ in so far as the theory o f economic equilibrium is merely a theory
o f distribution o f scarce resources between different uses it does
not need any institutional data at all, for the relevant considerations
can be deduced from the example o f Robinson Crusoe” . Marxian
economics, on the other hand, is distinguished by making the specif­
ication o f a particular institutional datum— “ the existence of a class
o f people who do not possess any means o f production” — the very
corner-stone o f its analysis; and by providing “ not only a theory
o f economic equilibrium, but also a theory of economic evolution” .1
The real source o f the superiority o f Marxian economics lies in the
field o f explaining and anticipating a process o f economic evolution;
and “ it is not the specific economic concepts used by Marx, but the
definite specification o f the institutional framework in which the
economic process goes on in capitalist society that makes it possible
to establish a theory o f economic evolution different from mere
historical description” .2
Most orthodox Marxists, however, according to Lange, “ believe
that their superiority in understanding the evolution o f Capitalism
is due to the economic concepts with which Marx worked, i.e. to his
using the labour theory o f value. They think that the abandonment
o f the classical labour theory o f value in favour o f the theory o f
marginal utility is responsible for the failure o f ‘bourgeois' economics
to explain the fundamental phenomena o f capitalist evolution.” 3
But in this they are wrong. For the labour theory is “ nothing but
a static theory o f general economic equilibrium” . In essence, it is
“ as static as the modem theory o f economic equilibrium, for it explains
price and production equilibrium only under the assumption o f certain
data (i.e. a given amount o f labour such as is necessary to produce
a commodity— an amount determined by the technique o f pro­
duction)” .4 Nor is the theory “ based on more specialised institutional
assumptions than the modem theory o f economic equilibrium; it
holds not only in a capitalist economy, but in any exchange economy in
which there is free competition” .5 Thus the labour theory “ cannot
possibly be the source o f the superiority o f Marxian over ‘bourgeois*
economics in explaining the phenomena o f economic evolution '.6
1 O . Lange, op. cit., pp. 191-2. 2 Ibid., p. 194.
3 Ibid., p. 194. 4 Ibid.
6 Ibid., pp. 19 4 -51 and see also pp. 197-8. In a capitalist econ om y the th eory is o f course
subject, as Lange notes, to “ certain modifications due to differences in the organic com ­
position o f capital” .
8 Ibid., p. 195.
228 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

A Marxist must o f course recognise that Lange’s suggestion that

every-day life o f a capitalist economy” in a superior manner to

“ Marxian economics” contains an important element o f truth.1 It
is perfectly true that “ bourgeois” economists have in general been
more diligent and perceptive in writing about such matters as money,
credit, taxation, etc., than Marxian economists. One sometimes
wonders, however, whether those “ bourgeois” economists who
try to “ provide a scientific basis for rational measures to be taken
in the current administration o f the capitalist economy” 2 normally
gain a great deal o f inspiration from the general theory o f “ bourgeois”
economics— i.e., from the “ static theory o f economic equilibrium”
which Lange so accurately describes. One wonders, too, whether it
would not be more useful, even when dealing only with these every­
day short-period phenomena, to start with a theory which makes
the specification o f “ the existence of a class o f people who do not
possess any means o f production” the very corner-stone o f its analysis,
rather than with a theory which omits altogether to specify this rather
vital “ institutional datum” .3 But even if we accept Lange’s implicit
denial o f the relevance o f the “ institutional datum” to these short­
term problems, is it quite so easy to deny its relevance to the problem
o f distribution? This, it seems to me, is the really important point here.
Lange claims, in effect, that a number o f the familiar propositions
concerning the evolution o f capitalism can be deduced without the
intervention o f the labour theory o f value (or, indeed, o f any theory o f
value), provided that the “ institutional datum” is exactly specified—
a claim which may, I think, at least up to a point, be conceded. From
this Lange concludes that “ the superiority o f Marxian economics
in analysing Capitalism is not due to . . . the labour theory o f value” .4
But Marx’s analysis o f capitalism consists o f much more than those
1 Som e o f the instances w hich Lange gives o f the alleged inferiority o f M arxian to
“ bourgeois” econom ics, how ever, seem to m e to be illusory. For exam ple, to Lange’s
question (p. 191) “ W h a t can M arxian econom ics say about m o n o p o ly prices?” , a M arxist
m ay ju stifiab ly answer that so far as general law s o f m o n o p o ly price are concerned it can
say ju st as m uch — or as little— as “ bourgeois” econom ics. A n d to his question “ W h a t
can M arxian econom ics contribute to the problem o f the optim um distribution o f
p roductive resources in a socialist econom y?” , a M arxist m igh t answer that it can at
least contribute a k n o w led ge o f the fact that this w o u ld probably not be the basic
econom ic p roblem in a socialist econom y. Sim ilarly, one cannot accept Lange's som e­
w h a t cavalier brushing aside o f the M arxian theory o f crisis, and his suggestion that
its “ failure” is due to the fact that the labour theory o f value cannot explain deviations
fro m equilibrium prices (p. 196).
2 O . Lange, op. cit.t p . 191, footnote. 3 C £ ibid., p. 200.
4 Ibid., p . 201. (M y italics.)
 C R IT IQ U E OF THE L A B O U R T H E O R Y 229

propositions concerning the evolution o f capitalism which Lange

part, in which the anatomy of capitalism as such is considered, and a

“ dynamic” part, in which the “ laws o f motion” o f capitalism are
revealed. Any such sharp distinction between the statics and the
dynamics o f the subject would have been just as alien to Marx's
method as it was to Ricardo’s. But it does consist o f a general study
o f a developing organism, in which a consideration o f what may
be called the essential structure o f that organism plays an important
part. The study includes, in other words, an account o f the laws o f
production and distribution characteristic o f capitalism in its various
stages o f development. And a theory o f distribution, if it is to be useful,
must be based upon some sort o f theory o f value. What kind o f con­
siderations, then, should guide our choice o f an appropriate theory
o f value? Surely one of the main criteria is that it should be capable
o f serving as the basis for a theory o f distribution which does not
abstract from the vital fact o f “ the existence o f a class o f people who
do not possess any means o f production” . It is precisely this fact which
the “ bourgeois” theories o f distribution do tend to abstract from; and
it is precisely this fact which the Marxian theory, based as it is upon the
labour theory o f value, brings right to the forefront o f the analysis.
It is not a sufficient answer to this to say, as Lange does, that the
“ fact o f exploitation” can be deduced without the help o f the labour
theory o f value.1 If the relations o f production specific to capitalism
do indeed determine the forms o f distribution under capitalism,
one’s results are much more likely to be useful if one starts by con­
sidering distribution in terms o f these relations o f production, than
if one starts from a theory which abstracts from them, and then,
having arrived at a broad general result applicable to any type o f
economy, simply tacks on to it the “ institutional datum” peculiar to
capitalism.
In so far as “ most orthodox Marxists” believe that the superiority
o f Marxian economics is “ due to” its use o f the labour theory o f value,
then, this is no doubt one o f the main considerations which they have
in mind. But it is not quite correct to ascribe to Marxists (whether
“ orthodox” or otherwise) the view that “ the abandonment o f the
classical labour theory o f value in favour o f the theory o f marginal
utility is responsible for the failure o f ‘bourgeois’ economics to explain
the fundamental phenomena o f capitalist evolution” .2 Rather, Marxists
1 O . Lange, op. at., p. 195, footnote 3. 2 M y italics.
230 S T U D IE S I N THE L A B O U R T H E O R Y OF V A L U E

think that the marginal utility theory was the generalised expression
o f a new approach to economic phenomena, the essence o f which was
a tendency to abstract from the relations o f production; and that
it was this new approach which was responsible for the failure o f
the new “ bourgeois” economics adequately to explain the “ funda­
mental phenomena” both o f distribution under capitalism and o f the
evolution o f die capitalist system as a whole. The labour theory, on
the other hand, is the generalised expression o f an approach which
emphasises the determining role o f the relations o f production in
economic processes, and which therefore regards it as quite unsafe
to abstract from them; and it is precisely this, in the Marxian view,
which explains the relative success o f Marxian economics in dealing
with the “ fundamental phenomena” o f distribution and evolution
under capitalism.
A more sophisticated (aldiough less comprehensible) variant o f
Lange’s theme has recendy been put forward by Rudolf Schlesinger.
The argument o f the founders o f Marxism, Schlesinger suggests, is
burdened with “ assumptions on die theory o f prices which were
current in their days but unnecessary for the argument itself” .1 Like
Lange, he maintains that all the really valuable and essential tenets
o f Capital can be derived without the assistance o f the labour theory
o f value. In his famous letter to Kugelmann,2 says Schlesinger, “ Marx
dealt with the theory o f value in a way which hardly implies more
dian the conception o f social labour as die basic relation existing
between the members o f a society founded upon commodity exchange;
and the basic tenets o f Vol. I o f Capital can be derived from that
conception” .3 Similarly, speaking more specifically o f “ the funda­
mental Marxist tenets about the trend o f capitalist development” ,
Schlesinger argues that these are based on “ a few fairly safe assump­
tions” , viz:

“ (i) The distribution o f social labour between the various industries

represents the basic relation existing between the members o f a
society based upon commodity exchange.
“ (2) The various products o f human labour are exchanged against
each other at rates (prices) which tend to an equilibrium state which
can be defined as a function o f (though it is not necessarily propor­
tionate to) the average productivity o f labour applied in the different
spheres o f production.
1 Schlesinger, M arx: H is Time and Ours (London, 1950), p. 110.
2 Quoted above, p. 153. 8 Schlesinger, op. cit.t p. 119.
 C R I T I Q U E OF TH E L A B O U R T H E O R Y 231
“ (3) Competition puts a premium upon application o f above-
average means o f production, and threatens w ith destitution the
producer who does not succeed in keeping pace.”
The first o f these assumptions, Schlesinger continues, “ is identical
with the definition o f the subject o f economics, and is backed by the
consideration that changes in the technique and productivity o f human
labour are a much more promising subject for investigating the trends
in history than alleged changes in the scarcity o f diamonds or artistic
qualifications. It does not imply the assumption that this basic relation
is the only one affecting prices. Nor is the second assumption dependent
upon the derivation o f the function in a way satisfactory from the
economic and mathematical point o f view; no more need be assumed
than the fact, admitted as much by Marshall as by Marxists, that
the long-term trends o f prices are dominated by costs, and that labour
is by far the most important element o f costs.” Given these assump­
tions, Schlesinger argues, the “ fundamental Marxist tenets about
the trendy o f capitalist development” follow “ from elementary
data” .1
Schlesinger is much more specific than Lange on the question
o f the actual role which the labour theory plays, and ought to play,
in Marx’s system. W e should not drop the argument o f the founders
as unnecessary, he argues, simply because in our own time certain
non-Marxists “ can recognise many facts predicted by Marx and draw
from them inferences as to the need for social change, although they
do not accept the Marxist methodology which enabled those facts
to be forecast. What appears essential to me in this methodology is
the definition o f the subject o f economics contained in the so-called
theory o f value and the dynamic approach to it.” 2 The point
Schlesinger appears to be trying to make here is better expressed in
another place as follows: “ If economics is defined as the material
relations existing between men working for each other, the amount
o f work done for each other is the basic economic fact linking them,
and any other economic fact has to be derived from it.” 3 In other
words, the “ qualitative” aspect o f the Marxian labour theory (to use
Sweezy’s expression) constitutes the essence o f the Marxian
methodology, and should on no account be “ dropped as unnecessary”
— although Marxists should cease using the term “ value” to describe
something which is really nothing more than a definition o f the subject
o f economics. But the “ quantitative” aspect of the theory, according
1 Schlesinger, op. cit.t pp. n o - 1 1 . 2 Ibid., p. 110. 5
8 Ibid., p. io< .
2 32 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

to Schlesinger, is much more shaky. Marx, as we know, endeavoured

determined the relative equilibrium prices o f the commodities pro­

duced— even under capitalism, when commodities admittedly no
longer tend to sell “ at their values” . Marx evidently believed that it
was very important to be able to demonstrate this. According to
Schlesinger, however, he was mistaken both in his belief that it was
necessary to demonstrate it, and in his belief that his own demon­
stration o f it was satisfactory. From the point o f view o f Marx’s
fundamental analysis o f the laws o f motion dominating the changing
relations between the different classes o f society, Schlesinger argues,
“ it is irrelevant whether the assumed substance o f economic relations
(that is to say, the chosen abstraction) is sufficient to explain the actual
levels o f prices” .1 And Marx’s endeavour to show that the abstraction
was in fact sufficient to explain these price levels ran up against three
great (and probably insuperable) difficulties. First, there is the skilled-
unskilled labour problem, which according to Schlesinger is “ certainly
the most serious difficulty met by an inherent criticism o f Marxist
economics” .2 Second, there is the problem arising because o f “ the
incorrectness o f Marx’s derivation o f production prices from values”—
i.e., the “ transformation problem” .8 And third, there is the difficulty
o f adapting the labour theory o f value, in the form in which Marx
propounded it, to ‘ ‘the stage o f modem monopoly capitalism” .4
All in all, Schlesinger suggests, it would be better if Marxists
dropped the “ quantitative” aspect o f the Marxian value theory
entirely, and retained the concept o f “ value” (suitably re-named)
only as “a methodological approach which by mere incident (sic)
coincides with the law o f prices actually valid in a past stage o f
society” .5
This argument, while more imposing than Lange’s, suffers from
the same fundamental defect. If the “ quantitative” aspect o f the
Marxian theory o f value is dropped, nothing will remain o f the
Marxian theory o f distribution but a sort o f sociological skeleton.
Is any attempt to be made to fill the gap, and if so along what lines
should it be made? Schlesinger, looking at the problem through
1 Schlesinger, op. cit., p. 107.
2 Ibid., p. 129. “ Should no one succeed in solvin g the problem ” , Schlesinger suggests,
“ w e should be left w ith no alternative other than describing M a rx’s continued use o f the
term Value* as an abstraction from the conditions o f a disintegrating society o f small
craftsmen and peasants, simple producers o f com m odities w ith the corresponding ideo-
lo g y .”
3 Ibid., p. 139. 4 Ibid., p. 149. 5 Ibid., p. 119.
 C R I T I Q U E OF T H E L A B O U R T H E O R Y 233

the spectacles o f a sociologist, would probably not admit the existence

o f any real gap: the “ basic tenets” o f Capital— i.e., those basic for him
as a sociologist— could be derived easily enough from the sociological
skeleton. Lange, looking at the problem as an economist, certainly
recognises the existence o f a gap, and suggests in effect that it be filled
with the aid o f the “ bourgeois” theory o f distribution. For reasons
which I have described elsewhere in this book, neither o f these two
answers to the question appears to me to be satisfactory. But
if Schlesinger were correct in thinking that it is impossible to demon­
strate the existence o f the kind o f quantitative connection between
“ values” and prices which Marx had in mind, the whole matter would
obviously have to be reconsidered. In relation to the first two o f the
difficulties which Schlesinger names, the skilled-unskilled labour
problem and the “ transformation problem” , I hope I have already
,said enough to suggest that these obstacles are not as serious as he
thinks. The third difficulty, however, the adaptation o f the theory
to monopoly capitalism, is indeed a more serious one, although
(as I shall try to indicate later) I do not think it calls for a really funda­
mental reconstruction o f the Marxian theory.
W hy did Marx think it necessary to demonstrate the existence
o f a quantitative connection between “ values” and prices? W hy,
in other words, did he consider it so important to show that “ the
material relations existing between men working for each other”
ultimately determined the relative prices of the products o f their
work? Schlesinger suggests that this was a “ logical mistake” : it does
not follow from “ the fundamental importance o f social labour as
the factor dominating economic events” , he says, that “ it must be
possible to derive prices exclusively from this factor” .1 But surely

1 Schlesinger, op. cit, pp. 96-7. Schlesinger’s phrase “ the fundam ental im portance o f
social labour as the factor dom inating econom ic events" is evidently a com pound o f tw o
others w h ich appear in inverted com m as on the same page (96) o f his book. In the context,
it appears as i f these w ere quotations from Engels. In actual fact, th ey are quotations from a
sum m ary b y Engels o f an argum ent b y Som bart. Som bart (according to Engels) argued that
“ the concept o f value in its material definiteness in M a rx is nothing but the econom ic
expression fo r the facts o f the social productive force o f labour as the basis o f econom ic
existence; in the final analysis the la w o f value dominates econom ic events in a capitalist
econom ic system, and for this econom ic system quite generally has the fo llo w in g content:
the value o f com m odities is the specific and historical form in w h ich die productive
force o f labour, in the last analysis dom inating all econom ic transactions, determ iningly
asserts itself” . Engels comm ents that although it cannot be said that this concept o f the
significance o f the law o f value fo r the capitalist form o f production is w ro n g , “ it does
seem to m e to be too broad, and capable o f a narrow er, m ore precise form ulation; in
m y opinion it b y no means exhausts the entire significance o f the la w o f value for the
econom ic stages o f society’s developm ent dom inated b y this law ” (Engels on "Capital” ,
pp. 99-100).
234 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

Marx began with something rather more concrete than a mere recogni-
tion o f “ the fundamental importance o f social labour as the factor
dominating economic events’*. He began, first, with a hypothesis
which was to be tested— the hypothesis that men’s relations o f produc­
tion ultimately determined their other economic relations (including
their exchange relations) throughout the whole period o f commodity
production; and, second, with the assumption that (as Schlesinger
puts it) “ the distribution of social labour between the various industries
represents the basic relation between the members o f a society based
upon commodity exchange” . How, then, does this basic relation
between men who work for one another operate to determine relations
o f exchange? It operates, Marx answered, through the amount o f
work which they do for each other, which directly or indirectly
determines the exchange ratios o f the goods in which this work is
embodied. The question o f whether or not prices can be derived
from “ values” , then, can hardly be said to be “ irrelevant” to Marx’s
fundamental analysis in Capital. So long as we exclude the possibility
o f the relations o f production generating “ extra-economic” forces
which cause prices to deviate from “ values” or “ prices o f production”
in a way which is not quantitatively determinate, the demonstration
that prices can be derived from “ values” (“ even if such derivation
should give no more than a first approximation” )1 is a necessary and
important part o f the testing o f the hypothesis with which Marx
began.
The great merit o f Schlesinger’s critique is that it draws special
attention to the “ qualitative” aspect o f the value problem. The main
distinguishing feature of Mrs. Robinson’s numerous digs at the
labour theory (they can scarcely be said to constitute an integrated
critique)2 is that she ignores this aspect almost entirely. She sees Marx’s
definition o f “ value” as nothing more than a “ purely dogmatic
statement” .8 The labour theory, “ according to Marx’s own argument,
. . . fails to provide a theory o f prices” ; “ none o f the important ideas
which he expresses in terms o f the concept o f value cannot be better
expressed without it” ; and its function is therefore reduced to that
o f providing the “ incantations” which Marx uses (in conjunction

1 Schlesinger, op. cit., p. 119,

2 C f. G uihćneuf, op. cit.f p. 17 1: “ L ’interprćtation de Mrs. R ob in son ne saurait con -
stituer une critique sćrieuse de la thćorie m arxiste de la valeur. Elle ne va m£me pas sans
une certaine naivetć.”
3 A n Essay on Marxian Economics, p. 12.
 C R I T I Q U E OF TH E L A B O U R T H E O R Y 235
oppression’*) to slay “ the complacent apologists o f capitalism**.1
So far as the theory o f exchange ratios is concerned, all we can take
from Marx is the “ ‘quite ordinary* theory o f cost o f production” 8
put forward in Volume III. Marx*s attempt at a “ reconciliation’* o f
his Volume I theory o f value with his Volume III theory o f prices is
“ purely formalistic and consists in juggling to and fro with averages
and totals” .8 Thus in Marx’s system, Mrs. Robinson tells us, “ value
precedes price, because the fact o f exploitation lies behind the pheno­
mena o f the market” .4 In the concept o f value are concentrated
“ the mystical elements in Marxian thought, which give it a significance
quite beyond its definable meaning” .5 Nowhere does Mrs. Robinson
give any real consideration to the meaning o f Marx’s dictum that
value is a social relation, or to the connection between the Marxian
concept o f value and the materialist conception o f history.
In her Open Letter from a Keynesian to a Marxist, however, Mrs.
Robinson argues that she understands Marx better than the Marxists,
since she has Marx in her bones whereas the Marxists only have him
in their mouths. As an example, she takes “ the idea that constant
capital is an embodiment o f labour power expended in the past” .
To the Marxists, she argues, “ this is something that has to be proved
with a lot o f Hegelian stuff and nonsense. Whereas I say (though I
do not use such pompous terminology): ‘Naturally— what else did
you think it could be?* ” 6 And in the following passage she makes
her point rather more explicit:

“ For Ricardo the Theory o f Value was a means o f studying the

distribution o f total output between wages, rent and profit, each
considered as a whole. This is a big question. Marshall turned the
meaning o f Value into a little question: why does an egg cost more
than a cup o f tea? . . . Keynes changed the question back again.
He started thinking in Ricardo’s terms: output as a whole and why
worry about a cup o f tea? When you are thinking about output
as a whole, relative prices come out in the wash— including the

1 An Essay on Marxian Economics, pp. 17 ,2 0 and 22. C f. the fo llo w in g statement b y M rs.
Economic Journal,
R o b in so n in the June 1950, p. 360: “ T h e th eory o f value, in the narrow
sense o f a theory o f relative prices, is not the heart o f M arx’s system (though both he and
B o h m -B a w erk believed that it was), and nothing that is im portant in it w ou ld be lost i f
value w ere expunged from it altogether.”
2 Sorabart, quoted b y B o h m -B a w erk , quoted b y M rs. R ob in son in the Economic
Journal, June 1950, p. 359-
3 Economic Journal, June 1950, p. 360. 4Ibid., p. 363.
5 Science and Society, Spring 1954, p. 145.
6 On Re-reading Marx (Cam bridge, 1953), p* 20.
236 STU DIES IN THE L A B O U R T H E O R Y OF V A L U E

relative price o f money and labour. The price level comes into die
m a in
point. If you have had some practice on Ricardo’s bicycle you do
not need to stop and ask yourself what to do in a case like that,
you just do it. You assume away the complication till you have
got the main problem worked out. So Keynes began by getting
money prices out o f the way. Marshall’s cup o f tea dissolved into
thin air. But i f you cannot use money, what unit o f value do you
take? A man hour o f labour time. It is the most handy and sensible
measure o f value, so naturally you take it. You do not have to
prove anything, you just do it.
“ Well there you are— we are back on Ricardo’s large questions,
and we are using Marx’s unit o f value. What is it that you are com­
plaining about?” 1
If the final question is intended to mean: “ How does this differ in
essence from what Marx did?” , the answer is surely fairly evident.
In the first place, as we have seen, the Marxist concept o f value was
not put forward to provide a handy unit o f account, but to provide
the basis for a theory showing how exchange ratios were determined,
which is o f course an entirely different matter. And in the second
place, Keynes certainly changed the question back from a little one
to a big one, but he did not change it back to Ricardo's question.
Keynes was concerned, as Mrs. Robinson states, with the question
o f the determinants of output as a whole. He was not concerned (or
at least not directly concerned) with “ the distribution o f total output
between wages, rent and profit, each considered as a whole” . It is
perfectly true that in Keynes’s question “ relative prices come out in
the wash” . But they do not do so, and cannot legitimately be made to
do so, in Ricardo’s question— nor in Marx’s question, which in this
respect is a sort o f compound o f Ricardo’s and Keynes’s.2 Ricardo
and Marx, in dealing with their questions, found that it was necessary
to begin with a theory showing how relative prices were determined.
They found, too, that since their questions were big rather than small
their theory o f the determination o f relative prices had to be rather
different in character from that which was later to serve Marshall
in connection with his cup o f tea problem. They found, in other
words, that they needed a theory o f value in the traditional sense
1 O n Re-reading M arx, pp. 22-3.
2 In the case o f M a rx ’s question, h ow ever, it is perfectly true that the problem o f the
relative prices o f individual com m odities such as an eg g and a cup o f tea was o f distinctly
secondary im portance w hen com pared w ith that o f the relative prices o f broad groups
o f com m odities such as w age-goods, capital goods, etc.
 C R I T I Q U E OP T H E L A B O U R T H E O R Y 237

if they were going to be able to solve the problem o f distribution.

misconstrues entirely the role which the labour theory played in Marx’s
system, is no doubt one o f the things that the Marxists are “ complain­
ing about” .
It is nevertheless true, as Henri Denis has said, that “ each o f the
studies in which Mrs. Robinson develops and refines her criticism
o f the labour theory o f value brings us a great variety o f new insights,
which are always very suggestive” .1 But the suggestive character
o f her studies is somewhat diminished by the fact that she often appears
to take her stand upon an aggressive “ common sense” which rejects
abstractions such as “ value” and “ surplus value” on the grounds
that we should deal only with the hard, elementary facts of direct
experience. For example, Marx puts forward the idea that prices
can usefully be explained in terms o f a “ value” which underlies
and ultimately determines them. Mrs. Robinson argues that the prob­
lem o f the transformation o f values into prices is unreal because
“ the values which have to be ‘transformed into prices* are arrived at
in the first instance by transforming prices into values99* Then again,
Marx puts forward the idea that profits can usefully be explained in
terms o f a “ surplus value*’ which underlies and ultimately determines
them. Mrs. Robinson argues that “ what is important is the total
amount o f surplus which the capitalist system succeeds in acquiring
for the propertied classes, and there is no virtue in dividing that
total by the amount o f labour employed, to find the rate o f exploita­
tion, rather than by the amount o f capital, to find the rate o f profit” .8
In other words, according to Mrs. Robinson, the derivation o f prices
from values, and o f profits from surplus values, only makes sense if
the values and surplus values with which we start are themselves
directly derived from empirically-perceived prices and profits— that
is, only if the “ derivation” amounts to nothing more than the state­
ment o f a tautology. If the values and surplus values with which we
start are conceived to be arrived at by any other means, then according
to Mrs. Robinson we are immediately transported to the sphere o f
metaphysics.4 Thus Capital, in so far as it does not consist o f tautologies,

1 Science and Society, Spring 1954, p. 160.

8 Economic Journal, June 1950, p. 362. 3 Essay, p. 16.
4 A similar argum ent to that w h ich Mrs. R obinson em ploys here could be used to show
that A d a m Sm ith’s “ natural price” does n o t exist— all that is “ real” is market prices,
since these alone enter directly into our experience.
238 S T U D I E S IN T H E L A B O U R T H E O R Y OF V A L U E

inconsistent propositions, some sound (i.e., corresponding to the

or metaphysical (i.e., not so corresponding), which Marx vainly

endeavours to “ reconcile” with one another.
But one who really had Marx in his bones could hardly help seeing
what he was actually trying to do in Capital Broadly, as we have seen,
he was trying to penetrate to the essence which lay below the appear­
ances o f the market place. The appearances which were accessible to
simple observation, he believed, were often deceptive: it appeared,
for example, as if exchange ratios were determined by nothing more
than “ supply and demand” , and as if profit was simply an amount,
proportionate to the total quantity o f capital employed, which was
“ added on” to their costs by the capitalists. If one wanted a theory
o f value and distribution, in any real sense o f the word, one could
not be content with the crude facts and superficial generalisations
which simple observation revealed, but must try to explain these facts
in terms o f the operation o f deeper and more fundamental causes.
There was nothing metaphysical about Marx’s approach, however
much his “ coquetting” with Hegelian modes of expression1 might
make it appear otherwise. He was simply trying to ascertain the basic
causes o f the phenomena observable in the market— a reasonable
enough enquiry, surely, under conditions where “ there is no conscious
social regulation o f production” , and “ the reasonable and the necessary
in nature asserts itself only as a blindly working average” . The vulgar
economist, said Marx,
“ thinks he has made a great discovery, when, as against the dis­
closure o f the inner connection, he proudly claims that in appearance
things look different. In fact, he is boasting that he holds fast to the
appearance, and takes it for the last word. W hy, then, any science
at all?” 2
This, I think, is the type o f consideration which has to be borne
in mind when assessing Mrs. Robinson’s suggestion that “ i f there
is any hope o f progress in economics at all, it must be in using academic
methods to solve the problems posed by Marx” .3 Now that academic
economists have turned their attention to the problems o f capitalist
crisis and economic development, it seems to me perhaps rather more
true to say that the hope o f progress lies in using Marx’s methods to
solve the problems posed by academic economists.
1 Capita^ V o l. I, p. x x x .
2 Letters to Kugelmann, p. 74. C f. Engels on “ Capital'*f p. 127. 2 Essay, p. 95.
 C R I T I Q U E OF TH E L A B O U R T H E O R Y 239

6 . Conclusion
It is n ot easy to sum up the w o rk o f the rririrg rnmidered in this
chapter. The quality o f their contributions and the viewpoints from
which they start are so diverse that they seem at first sight to have
very little in common. But I think there are two points which may
usefully be made by way o f general comment.
In the first place, what mainly worries most o f the critics is the
fact that prices do not directly correspond with Marxian “ values”
in the capitalist economy which Marx was primarily concerned to
analyse. To Bohm-Bawerk and Pareto, this “ contradiction” is abso­
lutely fatal to the whole Marxian theory, since it appears to them that
Marx's “ solution” is logically unsound. To Bernstein, the “ contra­
diction” reduces the Marxian concept o f value to nothing more than
an “ abstract image” which cannot possibly serve as the basis for a
“ theory o f value” in the traditional sense. To Lindsay and Croce, it
means that the labour theory cannot legitimately be interpreted as a
scientific tool for the analysis o f capitalist reality, but only as a theory
o f natural right or as a mere standard for comparing one type o f
society with another. To Schlesinger, it means that the “ quantitative”
aspect o f the labour theory must be dropped entirely, and to Mrs.
Robinson it reduces the theory to mystification and metaphysics.
There is no need to recapitulate my reasons for believing that these
conclusions are quite unwarranted. All that I wish to emphasise
here is that what most o f the critics are really confused about, at
heart, is the nature o f Marx’s economic method.
Second, the arguments o f most o f the critics suggest, either directly
or impliedly, that the gap left by Marx’s alleged failure to provide
a scientific theory must be filled, if it is to be filled at all, by one or
another o f the modem theories o f value or price. In the case of Bohm-
Bawerk and Pareto this is o f course the main theme. To Bernstein,
both the Marxian theory and the marginal utility theory are equally
“ purely abstract entities” , and if a choice has to be made between them
it should probably be made in favour o f the latter rather than the
former. To Lindsay and Croce, it seems that a “ general economic
science” , deducing the concept o f value from quite different principles,
must e:
Robinson, the gap must be filled by an explanation o f commodity
and factor prices couched in terms o f the conceptual apparatus o f
modem equilibrium theory. Taken as a whole, then, and quite apart
from the subjective intentions o f any individual writer, the criticisms
240 STU D IES IN THE L A B O U R T H E O R Y Op V A L U E

we have considered must be regarded as constituting not only an

attack nn the Marxian approach to economic phenomena but also q
defence o f the type o f approach which abstracts from the relations
o f production.
There is one other matter which should be mentioned before
this chapter is concluded. The writers I have dealt with are not only
typical representatives o f the different standpoints distinguished above,
but also among the most competent representatives o f these stand­
points. If the labour theory is to be defended, it must obviously be
defended against the attacks of its most mature and intelligent critics.
But it would leave the reader with an entirely false impression o f
the quality o f the general run o f Marx-criticism in the West today
if I did not say at least a little about the lesser critics.
There is no doubt that the average standard o f Marx-criticism, both
in academic circles and elsewhere, is quite extraordinarily low. Let
us take as a not untypical example a recent book entitled The Theory
and Practice o f Communism by R . N. Carew Hunt— an author who
begins by specifically accepting the healthy assumption that Marxism
“ is not to be refuted by attributing to its best exponents positions
which they have not adopted” ,1 and then proceeds to do precisely
this. From the seven pages in which Mr. Hunt discusses the labour
theory o f value we may select the following statements: The
Classical economists “ had adopted the theory o f value first outlined
by Locke, who had defended private property on the grounds that a
man was entitled to that to which he had given value by his labour,
and they had thus made labour the criterion o f value” . Ricardo put
forward, with certain reservations, a theory o f value according to
which the value o f a commodity depended on the relative quantity
o f labour required to produce it; and he held what Lassalle was later
to call the “ Iron Law of Wages” , according to which the value o f
labour itself similarly depended upon the cost o f the labourer’s subsis­
tence. Marx and others seized upon this theory, using it to suggest
that the whole value o f a commodity, since it was due to labour,
ought to be paid to labour. In Volume I o f Capital Marx certainly
gives the impression that he is seeking to relate value to price; but in

as he did not believe that value could be related even to the normal
price o f the classical economists, much less to market prices” . In
Marx’s account o f the reduction o f skilled to unskilled labour the
1 P. vi.
 C R I T I Q U E OF T H E L A B O U R T H E O R Y 241
“ coefficient o f reduction” is not stated, and Marx’s argument is

a labourer works for himself (i.e., to reproduce the value paid to him
as wages). According to Marx, labour alone is entitled to the value
it is alleged to create. When Marx came across the famous “ contra­
diction” , “ he did not face it at the time, and set it aside for further
treatment” . Present-day Marxist economists maintain that the deriva­
tion o f average profit from surplus value is “ a technical and esoteric
process, and that in drawing attention to it Marx had revealed further
contradictions within Capitalism that had hitherto escaped his notice” .
But Marx’s explanation is in fact “ a manifest trespass, as it is incon­
sistent with his premise that labour alone determines value” . In the
end, Marx is “ driven to admit that exchange value is governed by the
market, that is, by the law o f supply and demand, which makes
nonsense o f his theory that it is derived from labour only” .1 It seems
to me, for reasons which I have sufficiently explained above, that
these statements involve so many half-truths, superficial interpretations
and errors o f fact that the picture presented o f the Marxian theory
is simply a travesty. And it should be remembered that Mr. Hunt’s
book is far from being the worst o f the popular accounts o f Marxism
which have appeared in recent years.
If I take only this one example o f relatively uninformed criticism,
this is by no means because a dozen similar examples do not He ready
to hand. W e occasionally read even yet that Marx accepted the
Malthusian theory o f population, and that he wrote Volume III o f
Capital in order to extricate himself from the difficulties in which
he had got himself involved in Volume I. There are many variations
on the theme that Marxian economic theory is an “ unscientific” and
“ metaphysical” construction erected upon “ the quicksands o f an
obsolete Ricardian dogma” .2 All too often, writers seem to assume
that when dealing with Marx it is permissible to relax academic
standards to a degree which they themselves would regard as quite
illegitimate if they were dealing with any other economist.
The present writer would not of course maintain that Marx’s
theory o f value is in all respects complete and perfect. Apart altogether

Marx worked out his theory of value with the primary aim of analys­
ing a particular stage in the development o f commodity production—
1 The Theory and Practice o f Communism, pp. 52-8.
2 G . D . H . C o le , Marxism and Anarchism, 18 50 -1890, p. 296.
242 S T U D I E S I N THE L A B O U R T H E O R Y OP V A L U E

the competitive capitalist stage; and much more work still remains

poly capitalist and socialist stages. Naturally Marxists always have an

obligation to develop their theories in the face o f changing concrete
circumstances. There are a dozen important problems still to be
solved, but one o f the essential preconditions for solving them is to
obtain a proper understanding o f Marx’s original theory. And such
an understanding, unfortunately, the work of the critics considered
above— in spite o f the sincerity and ingenuity which much o f it
displays— is very far indeed from giving us.
 C h apter Seven

THE REAPPLICATION OF THE MARXIAN

LABOUR THEORY
i. The “ Marginal Revolution ” and its Aftermath
HE critique o f Marx’s book” , wrote Pareto, “ no longer

T remains to be carried out. It is to be found not only in

the special monographs which have been published on this
subject, but also and above all in the improvements made by Political
Economy in the theory o f value.” 1 The best reply to Marx’s theory
o f value, Pareto believed— and many others from Bohm-Bawerk
onwards have shared his belief—was constituted by the new theories
o f value which arose as the direct or indirect result o f the “ marginal
revolution” o f the 1870’s.
I think it may be useful, therefore, before proceeding to discuss
the problem o f the reapplication o f the Marxian labour theory, to give
a short account o f the “ improvements” o f which Pareto speaks.
If the new theories are in fact improvements on the old ones, if they
are more “ scientific” and give a more useful and meaningful explana­
tion o f economic reality, then obviously there is no need to bother
our heads about the problem o f reapplying the Marxian theory.
If, however, the apparent advance in the understanding o f economic
reality is actually a retreat, i f the superiority o f the new theories is
merely technical and formal, then it is evidently the duty o f economists
to re-examine some o f the older tools which have perhaps been too
hastily discarded.
The so-called “ marginal revolution” , as every student knows,
was ushered in by Jevons, Menger and Walras in the early 1870’s.
But the term “ revolution” here is something o f a misnomer. The
change in the general atmosphere was real enough, but the leading
ideas o f the “ revolutionaries” were by no means as novel as they
sometimes liked to contend. Many o f these ideas had already been
put forward— often in a surprisingly “ advanced” form— in the years
before 1870, particularly in the course o f the debates on the Ricardian
theory which took place in the i820*s and ’30’s. And, even more
important, the work o f certain writers like John Stuart Mill, who
1 Introduction to Extracts from Karl M arx’s “ Capital” , p. iii.
244 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

believed themselves to be writing in the broad Ricardian tradition,

than the “ revolutionaries” themselves suspected.

Under the influence o f Jevons,1 Marshall,2 Keynes3 and others,
the idea has grown up that the Ricardian system was taken over
more or less in its entirety by John Stuart Mill, whose amendments
and additions allegedly related only to inessentials. But this is so only
if we regard the theory o f value as an inessential, since nothing is
more certain than that Mill decisively rejected Ricardo’s concept
o f real or absolute value and the theory which he had based upon it.
And we surely cannot regard the theory o f value as an inessential.
The particular theory o f value with which an economist begins,
as we have already seen, is almost invariably a sort o f shorthand
expression o f the basic attitude which he is going to adopt towards
the phenomena he seeks to analyse and the problems he seeks to
solve.4 This was as true o f Mill as it was o f Ricardo and Jevons.
Mill’s role in relation to the opponents o f Ricardo was actually very
similar to Marshall’s role in relation to the opponents of Mill half a
century later. From the point o f view o f the development of economic
thought, the real significance o f Mill’s system lay in the extent to
which the ideas o f Ricardo’s opponents were in feet absorbed into it,
thereby clearing the path for the subsequent development o f these
ideas.
Let us examine Mill’s theory o f value with this point in mind.
To begin with, Mill insists in the first o f the propositions constituting
his “ summary o f the theory o f value” that “ value is a relative term” ,
thus implicitly acknowledging the correctness o f Bailey’s criticism
o f Ricardo’s concept o f absolute value.5 Then again, although his own
theory o f value cannot properly be described as a supply-and-demand
1 Jevons, Theory o f Political Economy, p. li.
2 Marshall, Principles, A ppendix I. 3 Keynes, General Theory, pp. 32-3.
4 C f. J. S. M ill, Principles (People’s Edn.), pp. 264-5 • “ In * state o f s o c ie ty in w h ich
the industrial system is entirely founded on purchase and s a le ,. . . the question o f Value
is fundamental. A lm ost every speculation respecting the econom ical interests o f a society
thus constituted, im plies some th eory o f V alu e: the smallest error on that subject infects
w ith corresponding error all our other conclusions; and anything vague or m isty in our
conception o f it, creates confusion and uncertainty in everything else.” C f. also W ieser,
Natural Value (English edn., 1893, ed. W . Smart), p. x x x .: “ A s a man’s ju dgm en t about
value, so, in the last resort, must be his ju d gm en t about econom ics. Value is the essence
o f things in econom ics. Its laws are to political econom y w h at the law o f gravity is to
mechanics. E very great system o f political econom y up till n o w has form ulated its o w n
peculiar v ie w on value as the ultimate foundation in theory o f its applications to practical
life, and no n ew effort at reform can have laid an adequate foundation for these applica­
tions i f it cannot support them on a n ew and m ore perfect theory o f value.”
5 M ill, Principles, p. 290. C f. ibid., pp. 266-7 and. 278-9.
 R E A P P L I C A T I O N OF TH E L A B O U R T H E O R Y 245

theory, Mill did on occasion use expressions which suggested that

“ a law of value anterior to cost o f production, and more funda­

mental” .1 So far as the utility theory o f value was concerned, Mill
cannot be said to have given much encouragement to its development,
except to the extent that his emphasis on the role o f demand was
greater than that o f most o f his “ Ricardian” predecessors; and he
explicitly rejected the theory that profit “ depends upon the productive
power o f capital” .2 If he protected the Ricardian fortress against
this attack, however, he yielded it completely to another, that o f the
“ cost o f production” theorists. Having begun his analysis o f value in
the Principles by accepting the traditional idea that the equilibrium
price o f a commodity tends to be equal to its money costs o f produc­
tion, including profit at the average rate, Mill went on to undertake
what he called the “ ultimate analysis o f cost o f production” .8 This,
however, turned out to be little more than a statement to the effect
that costs o f production consisted o f wages, profits, and (occasionally)
taxes. It could still be said that “ the value o f commodities . . . depends
principally. . . on the quantity o f labour required for their production”
— but only, it appeared, in the absurdly restricted sense that wages
usually made up the principal part o f money costs.4 This was clearly
not Ricardo’s theory o f value, but an out-and-out rejection o f it.
It would be wrong to suggest, however, as some have done, that
Mill’s analysis o f cost o f production was couched exclusively in money
terms. A real cost underlies the money cost in Mill’s system. Behind
wages, o f course, lies the expenditure o f labour— but what lies behind
profits? “ As the wages o f the labourer are the remuneration o f labour” ,
Mill replies,

“ so the profits o f the capitalist are properly, according to Mr.

Senior’s well-chosen expression, the remuneration o f abstinence.
They are what he gains by forbearing to consume his capital for his
own uses, and allowing it to be consumed by productive labourers
for their uses. For this forbearance he requires a recompense.” 6

It is clear that the distance is not so very great between this rather
vague labour-plus-abstinence theory o f Mill’s and the “ real cost”
1 M ill, Principles, p. 345.
2 Essays on Some Unsettled Questions o f Political Economy (1844), p. 90. C f. Principles,
p. 252.
8 Principles, pp. 277 ff. 4 Ibid., pp. 277-8; and cf. p. 291.
6 Ibid., p. 245.
246 S T U D I E S IN TH E L A B O U R T H E O R Y OP V A L U B

theory put forward by Marshall.1 And it is also clear that the very
Ricardo had always regarded as
something purely objective) and abstinence (which had necessarily
to be regarded as something subjective) must have encouraged the
growing tendency to conceive economic categories in subjective
terms, in abstraction from the relations o f production2— if, indeed,
it was not itself an expression o f this tendency.
Two other features o f Mill's work which paved the way for the
subsequent developments may be briefly described. The first o f these,
his well-known distinction between production and distribution,
was o f course made for the very best o f reasons.3 But the idea that
“ the laws and conditions o f the production o f wealth, partake o f the
character o f physical truths’*, whereas the distribution o f wealth is
“ a matter o f human institution solely’*,4 can be taken to imply (as
Marx put it) that “ distribution exists side by side with production
as a self-contained, independent sphere” .5 Smith, Ricardo and Marx,
as we have seen, tended to visualise production and distribution as
two aspects o f a single economic process in which production was
regarded as the dominant and determining factor.6 Once the ties
binding production and distribution together have been broken,
however, it becomes much easier to escape from the Classical tradition
in this respect and to begin to consider the laws o f distribution in
abstraction from the relations o f production.
Second, there was Mill’s famous distinction between statics and
dynamics,7 and his analysis o f the stationary state.8 To Smith and
Ricardo, the distinction between static and dynamic analysis would
probably have seemed an arbitrary and unnecessary one. The main
topic with which Ricardo, for example, was concerned, was “ the
progress o f a country in wealth and the laws by which the increasing
produce is distributed” ;9 and in his analysis o f this essentially dynamic
problem the static parts could hardly be separated out from the other
parts. Reading Ricardo’s work with Mill’s distinction in mind, one
becomes very conscious o f the fact that the distinction cannot really

1 C f. Schum peter, History o f Economic Analysis, p. 604, footnote 33: "It w ould be alm ost
though not quite correct to say that M ill (and Caim es) transform ed the Ricardian labour

2 C f. M . H . D o b b , Political Economy and Capitalism, pp. 140-1.

3 C f. M ill’s Autobiography (1873), pp. 246-8. 4 Principles, p. 123.
5 Critique o f Political Economy, p. 276. 8 C f. ibid., p. 282.
7 Principles, p. 421. 8 Ibid., B o o k IV , C hapter 6.
9 R icard o, Works, V II, p. 24.
 R E A P P L I C A T I O N OF T H E L A B O U R T H E O R Y 247

be applied at all to Ricardo’s analysis. The fact that Mill isolated “ the
Dynamics o f political economy” in a special section o f his book and
contrasted it so sharply with “ the Statics o f the subject” 1 can no doubt
be explained by his passion for logical systematisation; but the fact
that the section dealing with dynamics constitutes only about one-
tenth o f the Principles requires further explanation. The basic reason
for Mill’s pre-occupation with statics, I think, is that he believed that
it would not be very long before the advanced countries arrived at
the stationary state,2 in the analysis o f which dynamics would naturally
be o f little use. In this state, Mill believed, “ the mere increase o f pro­
duction and accumulation” which now unfortunately “ excites the
congratulations o f ordinary politicians” 3 would by definition be no
longer a matter o f concern, and men would be able to concentrate
upon securing something which in the advanced countries is much
more needed— a “ better distribution” .4 It would o f course be too
much to say that Mill is here delineating that problem o f the distribu­
tion o f a given set o f scarce resources among competing ends upon
which so many o f his successors have concentrated. By “ better distri­
bution” Mill clearly meant a better distribution o f income. But it at
least seems very probable that Mill’s general approach helped appreci­
ably to bring this problem to the forefront.
That this is so can perhaps be seen from the example o f Jevons,
who appears to have started with a somewhat similar set o f pre­
suppositions concerning the progress o f society— except that for him
the main obstacle to further advance was the impending exhaustion
o f Britain’s coal reserves rather than the law o f diminishing returns.
“ The momentous repeal o f the Com Laws” , he wrote in his early
work on The Coal Question, “ throws us from com upon coal” , 5
and this is bound to mean sooner or later “ the end o f the present
progressive condition o f the kingdom.” 6 N ow a man who displays
such a “ readiness to be alarmed and excited by the idea o f the ex­
haustion o f resources” 7 as Jevons did is quite likely to visualise the
fundamental economic problem as one o f making the best possible
1 Principles, p. 421.
2 M ill w as careful to refrain fro m m aking any concrete prophecies, but the w h o le
tone o f his argum ent (see particularly p. 452) suggests that in his opinion the end o f
material progress in the advanced countries could not be lo n g delayed.
8 Principles, p. 453. 4 Ibid., p. 454.
6 The Coal Question (2nd edn., 1866), p. 173. 6 Ibid., p. vi.
7 J. M . K eynes, “ W illiam Stanley Jevons, 1835-1882” , in Journal o f the Royal Statistical
Society, Part III, 193d, p. 522.
248 S T U D I E S IN TH E L A B O U R T H E O R Y OF V A L U E

use o f these scarce resources; and a man whose “ vigorous individual­

ism” 1 and fear o f the working-class movement2 are as manifest as
Jevons’s were will not be likely to envisage the proper solution o f this
problem as involving any fundamental change in the relations o f
production or even in the distribution o f wealth and income.3 “ The
problem o f Economics” , wrote Jevons,
,
“ may, as it seems to me, be stated thus:— Given a certain population,
with various needs and powers o f production, in possession o f certain lands
,
and other sources o f material: required the mode o f employing their
labour which will maximise the utility o f the produce” *
The problem with which Jevons thought economics ought to be
mainly concerned, then, was how to allocate a given set o f resources
among competing uses so that a given set o f desires (or demands)
would be most effectively satisfied.6
Jevons himself did not carry this through. In particular, his optimum-
allocation formulae did not quite extend to the problem o f the entre­
preneur’s demand for producers* goods. But he did at least manage
to outline the basic features o f the new type o f analysis which was soon
to be developed to deal with the new problem o f “ scarcity” . In the
first place, he made it clear that this was essentially a static rather
than a dynamic problem.6 In the second place, he established once
and for all that it was a problem in which marginal techniques might
be expected to be useful. And in the third place, he pointed out thas
since the problem was one o f satisfying a given set o f individual
demands “ the theory o f Economics must begin with a correct theory o f
consumption**.7
1 T . W . H utchison, A Review of Economic Doctrines, p. 46.
Introductory Lecture on the Importance of Diffusing a Know­
2 A n yo n e w h o reads Jevons’s
ledge of Political Economy (1866) w ill not, I think, feel inclined to question this phrase.
Jevons was acutely aware o f the fact that “ erroneous and practically mischievous” (p. 32)
view s on political econom y w ere becom ing popular am ong the lo w er orders. It is w orth
w hile reading som e o f the edifying w orks w hose diffusion he recom m ended in order to
stop the rot setting in, particularly W h ateley’s Easy Lessons on Money Matters, w h ich is
interesting not o n ly in itself but also because Jevons him self was brought up on it and
praised it v e ry h igh ly. It is o n ly fair to add, how ever, that a m uch m ore moderate v ie w
w as expressed b y Jevons in his The State in Relation to Labour (1882).
3 C f.The Coal Question , p. x x v : “ R eflection w ill sh ow that w e ought not to think
o f interfering w ith the free use o f the material w ealth w h ich Providence has placed at
our disposal, b u t that our duties w h o lly consist in the earnest and wise application o f it.”
4 Theory of Political Economy , p. 267.
5 C f. H utchison, op. cit., pp. 34-6, fo r an interesting discussion o f certain other factors
w hich m ay h ave led Jevons to see “ pure econom ic problem s as optim um -allocation
problems.”
6 Theory of Political Economy , pp. vii and 93-4.
7 Ibid., p. 40. C f also, on the same page, the statement that “ hum an wants are the
ultimate subject-m atter o f Econom ics.”
 R E A P P L I C A T I O N OF T H E L A B O U R T H E O R Y 249

It seems to me that the increasing popularity o f the new type o f

analysis in the years which followed can be at least partly explained
by the fact that the basic problem o f “ scarcity” with which it was
designed to deal actually began to emerge to prominence in the real
world. In the 1870*5 and 1880*5, as Wesley Mitchell pointed out,
“ on the whole the rate o f progress was believed by contemporaries
to have been checked” ;1 and in spite o f the subsequent recovery
the general situation has still apparently been such as to induce many
economists to begin by assuming (at least provisionally) that “ there is
no further possibility o f increasing the total quantity o f resources”
and therefore to concentrate on “ the possibilities o f increasing econo­
mic welfare by a more efficient allocation o f the given resources” .2
In addition, o f course, the new type o f analysis was found to be
particularly useful in connection with the task o f opposing the labour
theory o f value— a task which became more and more urgent as
Marxist ideas began to grow in popularity.
The marginal utility theory o f value, o f course, was much more
than an alternative method of explaining price ratios. It also expressed
an alternative general approach to economic phenomena. First and
foremost, it was an expression o f the idea that the whole o f economics
ought to be based on the investigation o f “ the condition o f a mind” .
“ The general forms o f the laws o f Economics” , wrote Jevons,
“ are the same in the case o f individuals and nations; and, in reality,
it is a law operating in the case o f multitudes o f individuals which
gives rise to the aggregate represented in the transactions o f a
nation.” 3
What we must start with, Jevons in effect argued, was the mental
relation between the individual and finished goods, rather than the
social relation between men and men in the production o f commodi­
ties.* And this implied that the basic laws and techniques o f economics
had a much greater degree o f generality than had usually been
1 W esley C . M itchell, Lecture Notes on Types of Economic Theory (N e w Y o r k , 1949),
V o L II, p. 59.
2 H la M yin t,Theories of Welfare Economics (London, 1948), p. xii. I f m y interpretation
is correct, it fo llo w s that Bukharin, in The Economic Theory of the Leisure Class, w as
class, but rig h t in associating it w ith a particular stage in the developm ent o f capitalism.
8 Theory of Political Economy, p. 15. C f. J. S. M ill, System ofLogic (People’s Edn., 1891),
P* 573-
* C f. Theory of Political Economy, p. 43: “ U tility , th ough a quality o f things, is no
inherent quality. It is better described as a circumstance of things arising out o f their relation
to m an’s requirements.”
 250 S T U D I E S IN TH E L A B O U R T H E O R Y OF V A L U E

assumed: they were in fact adequate to deal not only with the
optimum-allocation problems to be found in all forms o f exchange
economy, but also with those o f the isolated individual.1 This
amounted, o f course, to a complete rejection o f the Classical idea that
economic phenomena could only be properly understood if one
started with the relations o f production peculiar to the particular
economic formation under consideration. It was widely contended,
however, that because o f its “ scientific” character* the new type of
approach was capable o f giving a much more satisfactory answer to all
the main economic problems which the Classical economists had
tackled.
The chief developments ushered in by the Austrians proceeded
within this framework. Indeed, most if not all o f these developments
are to be found (at least in embryo) in the work of Jevons himself.
It is true that Jevons never worked out at all fully anything which
could properly be called a marginal productivity theory o f distribu­
tion, and that he still tended to think in terms o f some sort o f inde­
pendent “ real cost” lying behind supply. But there is some justifica­
tion for the view that his theories o f interest and wages were essentially
“ in agreement with the modem theory o f marginal productivity” ;3
and in his preface to the second edition o f the Theory o f Political
Economy the foundations o f a co-ordinated marginal productivity
theory o f distribution and a generalised doctrine o f opportunity cost
were quite clearly mapped out.4 And Jevons made it clear from the
beginning that the “ real cost” lying behind supply, although it could
often be said to be the “ determining circumstance” in die process
whereby values were fixed, could never be said to be so directly,
but only through the medium o f its effect (through supply) on marginal
utility— a view summarily expressed as follows in his famous table:
“ Cost of produđion determines supply:
Supply determines final degree of utility:
Final degree of utility determines value.” 5
If he had ever had time to reformulate this argument in the light
o f the ideas put forward in his preface to the second edition, there is
— 1 C f. Theory o f Political Economy, pp. 75 and 222._____________________________
* T h e b elief that the n ew developm ents had at last turned political econom y into a
real science was expressed {inter alia) b y w hat Jevons described as “ the substitution for
the name Political E co n o m y o f the single convenient term Economics'* (ibid., p. xiv).
3 Ibid., A ppendix I (by H. S. Jevons), p. 279. It is certainly true, at any rate, that Jevons* s
theory o f interest substantially anticipated that o f B oh m -B aw erk .
4 Ibid., pp. x lv i ff. 5 Ibid., p. 165.
 R EA P P LI C A T I O N OF T H E L A B O U R T H E O R Y 251
little doubt that Jevons would have come much closer to the Austrian

To many o f the later writers in this new tradition, the refutation

o f the Marxian version o f the labour theory appeared as a particularly
urgent task. There seems little doubt, for example, that Bohm-Bawerk
set out more or less deliberately to provide alternative solutions to the
problems o f value and surplus value which Marx had dealt with in so
unpalatable a fashion.1 Wieser, again, was well aware o f the fact
that in Germany “ there has o f late years been a widening acceptance
o f the labour theory” , and that many socialists were basing their
“ crusade against interest” on Ricardo’s system; and he therefore
found himself, as he put it, “ obliged again and again to speak against
the socialists” .2 The “ key fact” about J. B. Clark’s marginal produc­
tivity theory o f distribution, as his son has recently reminded us,
was probably that “ his statements are oriented at Marx, and are
best construed as an earnest, and not meticulously-qualified, rebuttal
of Marxian exploitation theory” .3 Cassel and Pareto, again, wrote
extensively on the Marxian system, and there can be little doubt that
many o f their leading theoretical statements too were “ oriented at
Marx” . And Wicksteed, in “ co-ordinating” the laws o f distribution
and attacking the Ricardian theory o f rent, was well aware of the fact
that “ any diagram o f distribution that represents the share o f the
different factors under different geometrical forms is sure to be mis­
leading, and is likely to be particularly mischievous in its misdirection
o f social imagination and aspiration” .4
1 Th ere is an interesting parallel here betw een B o h m -B a w erk and Schum peter. B o th
men agreed that M arx had posed a particular problem correctly (in B o h m -B a w erk ’s
case the problem o f stir plus value, and in Schum peter’s case the problem o f econom ic
developm ent), and both set out to g iv e an alternative answer to the problem as posed b y
M arx.
2 Natural Value, Natura! Value
pp. x x x i, x x ix and 64. T h e extent to w h ich was, in in­
tention and effect, a sustained polem ic against the M arxist and R odbertian systems has n ot
been sufficiently com m ented upon. See, e.g., B o o k II, chapter 7, on “ T h e Socialist
T h eo ry o f V alu e” ; B o o k III, chapter 3, on the socialist approach to die “ problem o f
im putation” ; B o o k V , chapters 8-10, on “ labour” theories o f cost. It is w o rth noting, I
think, that W ieser’s most im portant and distinctive contributions to econom ics, the theory
o f im putation and the “ law o f costs” , w ere put forw ard, at least in this w o rk , as arguments
against and alternatives to the R icardian and M arxian theories. C f. Hutchison, op. cit., p.
157, w h o speaks o f W ieser’s “ constant preoccupation” w ith attacks on the labour theory.
3J. M . C lark, in an essay in The Development of Economic Thought (ed. H . W . Spiegel,
N e w Y o r k , 1952), p. 610. C f. p. 605: “ T h e readiness o f thinkers to accept such a theory
[as the marginal utility theory o f value] at this tim e is probably explainable as a result
o f the use M arx had made o f the Ricardian theory, turning it into a theory o f exploita­
tion, and leaving liberal economists predisposed to adopt a theory o f a basically different
sort.” C f. also p. 599.
* The Common Sense of Political Economy (ed. L. R obbins, London, 1933), V o l. n , p.
792.
252 S T U D I E S I N T H E L A B O U R T H E O R Y OF V A L U E

For obvious reasons, the desire to use the new theories to attack

was in the case o f their continental colleagues.1 To Marshall, for

example, it was evidently a very minor consideration indeed. Marshall’s
main aim, so far as the theory o f value was concerned, was to correct
certain excesses o f Jevons and the Austrians (notably their over­
emphasis on the “ demand side” and their dilution or rejection o f the
concept o f real cost), and, while accepting what he regarded as the
important element o f truth in their doctrines, to emphasise the
essential continuity between these doctrines when so corrected and
those o f the Classical economists. The appearance o f continuity was
maintained by Marshall on the basis o f a somewhat shallow inter­
pretation o f Ricardo’s value theory. Setting the modern fashion for
“ generous” interpretations o f Ricardo, Marshall argued that Ricardo’s
theory of value, “ though obscurely expressed, . . . anticipated more
o f the modem doctrine o f the relations between cost, utility and value
than has been recognized by Jevons and some other critics” .2 Marshall’s
own theory o f value, however, was not in fact very much closer to
Ricardo’s than Jevons’s had been. It is true that Marshall argued that
the theory o f consumption was not the scientific basis o f economics ;3
but his theoretical exposition in the Principles nevertheless began with
an outline o f what was in effect such a theory.4 It is true, too, that he
insisted on the “ real” character o f costs, and the importance o f their
role in the process whereby values were determined, much more
strongly than Jevons had done, and that he specifically attacked the
Austrian idea that cost could be better explained in terms o f foregone
utilities than in terms o f “ real” sacrifices.5 But it must be emphasised
that the elements o f “ real cost” in terms o f which Marshall’s analysis
was framed were essentially subjective, and therefore very different
from Ricardo’s;6 and also that certain important ambiguities in his
concept o f waiting brought his analysis o f cost rather nearer to that
o f the Austrians (at least in a formal sense) than he himself probably
1 B u t the exam ple o f Sir Louis M allet show s that the desire did indeed exist, particularly
in Cobdenite circles. See his essays on “ T h e L aw o f V alue and the T h eo ry o f the U n ­
earned Increment**, in Free Exchange (ed. B . M allet), London, 1 891.
g Marshall, Principles o f Economics (8th edn.), p. x x x iii.
3 Principles, p. 90.
4 Sim ilarly, although M arshall alw ays insisted on the im portance o f dynam ics (upon
w hich his numerous incidental com m ents w ere often v ery valuable), and although he
was suspicious o f “ stationary state** m odels, his o w n analysis remained essentially static.
6 Principles, pp. 527-8, footnote.
8 C f. Schum peter, History o f Economic Analysis, p. 924, footnote 10.
 R E A P P L IC A T IO N OF THE L A B O U R T H E O R Y 253

suspected.1 Indeed, as we shall shortly see, there is an important sense

Ricardo’s than Jevons’s had been.

From the point o f view o f the subsequent development o f value
theory, the most important feature o f Marshall’s Principles was possibly
the encouragement which it gave to the general equilibrium approach
to value theory and that pre-occupation with form at the expense
o f content which is today so often associated with it. This encourage­
ment was given in part directly, by means o f Marshall’s Mathematical
Note XXI and the “ intermittent attention” given to “ the wider
conception o f the general interdependence o f all economic quantities”
in the Principles;2 and in part indirectly, by means o f his insistence
on the principle (which he ascribed to Cournot) that

“ it is necessary to face the difficulty o f regarding the various elements

o f an economic problem,— not as determining one another in a
chain o f causation, A determining B, B determining C, and so on—
but as all mutually determining one another. Nature’s action is
complex: and nothing is gained in the long run by pretending that
it is simple, and trying to describe it in a series o f elementary pro­
positions.” 3

Nothing is indeed gained by pretending that nature’s action (or

the action o f men in society) is simple, or that there is not an important
sense in which everything can be said to be determined by everything
else. But unless it is held possible to isolate some particular factor in a
given situation, and to treat it in some significant sense as a “ cause”
or “ determinant” , it is difficult to see how any science can ever advance
very far beyond the classificatory stage. Jevons’s catena o f causes was
not quite as silly as Marshall made it out to be. Marshall’s attitude,
however, would— and in fact did— encourage economists to believe that
it was neither possible nor necessary to make any causal statements
Political Economy and Capitalism, pp. 143 ff.
1 C f. M . H . D o b b ,
2 Schum peter, History of Economic Analysis
, p. 836. C f. Memoriab of Alfred Marshall
(ed. A . C . Pigou, London, 1925), p. 4 17: “ M y w h o le life has been and w ill b e given
to presenting in realistic form as m uch as I can o f m y N o te XXI.**
3 Principles, pp. ix -x . This principle was o f course the basis o f w hat M arshall described
as his “ greatest objection” to Jevons’s tabular statement o f his doctrine— that “ it does
not represent supply price, demand price and am ount produced as m utually determ ining
one another (subject to certain other conditions), but as determ ined one b y another in a
series. It is as though w h en three balls A , B and C rest against one another in a b o w l,
instead o f saying that the position o f the three m utually determines one another under the
action o f gravity, he had said that A determines B , and B determines C . Som eone else
h o w ever, w ith equal justice m igh t say that C determines B and B determines A ” (Prin­
ciples, p. 818).
254 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

at all in the field o f value theory,1 The Classical economists

had alike been misled into a false enquiry. There was in fact no need
whatever to seek for an “ independent** determining constant. All
that was really necessary was that the conditions o f the mutual inter­
dependence o f economic quantities should be expressible in a mathe­
matically determinate form— i.e., roughly, in the form of an equational
system in which the number o f unknowns was equal to the number
o f equations. It will be clear that the particular idea o f “ determinate­
ness” which lies behind this approach is radically different from that
which lay behind the Classical, Marxian and Mengerian theories of
value. To solve the value problem in this way is to solve it only in a
purely formal sense— i.e., it is not to solve it at all.
To Walras, who is generally regarded as the founder o f this type
o f approach, utility was still a significant factor— although its role
appeared by no means as important to him as it did to Jevons and the
Austrians. To his followers, however, it gradually began to appear
less and less important. Pareto, for example, noted that “ the whole
theory o f economic equilibrium is independent o f the notions o f
utility (economic), use value, or ophelimity” . He himself, like most
o f his immediate predecessors, had started by establishing the theory
o f economic equilibrium on the basis o f these notions, but he later
came to the conclusion that it was possible to do without them and to
develop instead “ the theory o f choice, which gives more rigour and
more clarity to the whole theory o f economic equilibrium” .2 Utility
gradually became more and more suspect, partly because o f the
hedonist presuppositions allegedly involved in the concept, partly
because under certain circumstances it was unmeasurable, and partly,
no doubt (in some instances), because in certain hands it had proved
more capable o f lending support to equalitarian proposals than many
o f its progenitors had expected or desired. In any event, utility began
to be regarded as an unsatisfactory and superfluous concept. Its place
came more and more to be taken by the concept o f preference
schedules, from which all hedonist presuppositions had allegedly been
expelled. To some economists this latter concept at first appeared

i.e., the function o f serving as the “ independent” factor which could

in the last analysis be regarded as determining value. Today, however,
1 C £ Cassel, Fundamental Thoughts in Economics, pp. 93-6.
2 Pareto, Manuel d*ftconomie Politique (French edn., tr. A . Bonnet, Paris, 1927), p. 543.
C f. Schum peter, op. ciKt p. 918.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 255

the preference schedules have increasingly come to be interpreted

as simply reflecting a consumer’s empirically observed behaviour
in the market place, and it is widely held that all that needs to be
postulated concerning the mental attitudes o f the consumer is that
his choices should be consistent— i.e., that in a given price-and-income
situation he chooses to buy in a way that is uniquely determined. In
effect, this has meant giving up entirely the search for a value theory
properly so-called. “ The theory o f price” , says Mr. Little, “ can begin
on the demand side quite legitimately with the demand curve. That
one’s ‘ultimate* data should be statistical can no longer be considered
a shocking idea.” 1 Prices can be made formally “ determinate” by
setting up an equational system in which the number o f equations
is equal to the number o f unknowns; and the ground has been so well
prepared by men like Pareto, Cassel, Fisher and Barone that this
type o f approach has come to command a wide measure o f approval
without the majority o f economists realising that anything at all is
missing. Modem economists, like modem artists and poets, seem all
too often to feel quite at home in

“ . . . a world where the form is the reality,

O f which the substantial is only a shadow.”

The fact that value and distribution theory has developed in this
direction does not in itself give grounds for complaint: one cannot
properly object to people engaging in a pleasing aesthetic activity.
But the new approach is often quite solemnly put forward as an
alternative to the Classical theory, and is used to give answers to the
same vital questions with which that theory was designed to deal.
Indeed, it is frequently claimed that the new doctrines, being more
“ scientific” and precise than the old, and less limited to particular
economic formations, are much more capable o f giving useful answers
to these questions than the “ crude” Classical theories were. Thus
the fact that the Classical theories o f distribution gave “ separate”
accounts o f rent, wages and profits has been widely held to be evidence
o f their “ unscientific” character.2 If one objects that a theory which
explains the origin of the wages o f labour and the rent of land on
precisely the same basis is not likely to be a very useful guide to
practice, the upholders of the theory may concede that it is in fact
1
1 . M . D . Little, A Critique o f Welfare Economics, p. 52.
2 C f. Schum peter, op. cit., p. 934; J. F. Bell, A History o f Economic Thought (N ew Y o r k ,
93
I S )» p- 424; and G. J. Stigler, Production and Distribution Theories (N e w Y o rk , 1946),
25 6 S T U D I E S IN THE L A B O U R T H B O R Y OF V A L U E

purely formal, but insist that this does not matter because there is
nothing at all to stop an economist going on to distinguish between
these two forms o f income on moral or political grounds if he wishes.
Was not Walras a land reformer? All one can really say in reply to
this is that it used to be conceived as a major task o f economic theory
to give information which people concerned with economic practice
would at least regard as relevant to the decisions they were obliged
to reach; and that if economic theory has now ceased to regard this
as part o f its function, so much the worse for it.
The real point here, I think, is that the expulsion o f utility from
value theory has not meant the expulsion o f the presuppositions
which were brought in with the utility theory. So far from meaning
a return to the Classical emphasis on relations o f production, the
expulsion o f utility has usually if anything meant a further retreat
from it. Welfare economics and the so-called “ economics o f socialism”
remain to a large extent in the grip o f the old presuppositions, and
even Keynes was by no means unaffected by them. And the theory
o f distribution, broadly speaking, is still weighed down by the notion
— the first-fruit o f the utility approach— that no “ factor” which is
customarily regarded as necessary for production can possibly receive
(at least in the absence o f monopoly or development) anything in the
nature o f a true surplus as part o f its income.1 The Marxian labour
theory o f value is not a magic wand which needs only to be waved
to transform the barren desert o f “ pure theory’* into fertile land.
But it is, I think, a signpost pointing to the direction which must be
followed if a way out of the desert is to be found.

2. T h e Operation o f the “ Law o f Value ” under Socialism

In his well-known letter to Kugelmann o f July 1868,2 Marx des­
cribed the “ necessity o f distributing social labour in definite propor­
tions” as a “ natural law” , which “ cannot be done away with by the
particular form o f social production, but can only change the form it
assumes” . And “ the form in which this proportional division o f labour
operates, in a state of society where the interconnection o f social
labour is manifested in the private exchange o f the individual products
o f labour, is precisely the exchange value o f these products” . A clear
implication o f this careful statement is that in a state o f society where
1 “That one cannot get something for nothing” has recently been described by Mr.
Harrod as “the most basic law of economics” (Towards a Dynamic Economics, p. 36).
2 See above, p. 153.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 257

the interconnection o f social labour was not manifested in the private

the proportional division o f labour operated would not be the exchange

value o f the products. The economic category “ value” , and the
question o f the manner in which the “ law o f value” operates, in
other words, have relevance only to what Marx and Engels called
“ commodity production” . (“ Commodities” , it will be remembered,
are “ products made in a society of private producers more or less
separate from each other, and therefore in the first place private
products. These private products, however, become commodities
only when they are made, not for use by their producers, but for use
by others, that is, for social use; they enter into social use through
exchange.” 1 There is no doubt that Marx and Engels visualised their
“ law o f value” as being uniquely associated with systems o f commodity
production, coming into operation as commodity production
developed and ceasing to operate when commodity production
ended.
There is no lack o f references to support this interpretation. Engels,
for example, in a letter to Kautsky o f September 1884, wrote as
follows: “ [You say that] value today is associated with commodity
production, but that with the abolition o f commodity production
value too will be ‘changed*, that is value as such will remain, and only
its form will be changed. In actual fact, however, economic value is a
category peculiar to commodity production, and disappears together
with it (cf. ‘Diihring’, pp. 252-262), just as it did not exist before it.
The relation o f labour to its product did not manifest itself in the form
o f value before commodity production, and will not do so after it.’*2
The passages from Anti-Dtihring to which Kautsky was here being
referred are those in the chapter on Distribution in which Engels
elaborates on this point. “ Commodity production’*, he writes,

“ . . . is by no means the only form o f social production. In the

ancient Indian communities and in the family communities o f the
southern Slavs, products are not transformed into commodities.
The members o f the community are directly associated for produc­
tion; the work is distributed on the basis o f tradition and require-
ments, and likewise the products in so far as they are destined for
consumption. Direct social production and direct distribution
1 Engels, Anti-Duhring, p. 336, and cf. ibid., p. 221. Cf. also Capital, Vol. I, p. 9.
2 K . Marx i F. Engels, Sochineniya (ed. V. Adoratsky, Moscow, 1935), Vol. XXVII,
p. 406.
258 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

exclude all exchange o f commodities, therefore also the transforma-

munity) ana consequently also their transformation into values.

“ From the moment when society enters into possession o f the
means o f production and uses them in direct association for pro­
duction, the labour o f each individual, however varied its specific­
ally useful character may be, is immediately and directly social
labour. The quantity o f social labour contained in a product has
then no need to be established in a roundabout way; daily experience
shows in a direct way how much of it is required on the average.
Society can calculate simply how many hours o f labour are contained
in a steam-engine, a bushel o f wheat of the last harvest, or a hundred
square yards o f cloth o f a certain quality. It could therefore never
occur to it still to express the quantity o f labour put into the products,
which it will then know directly and in its absolute amount in a
third product, and moreover in a measure which is only relative,
fluctuating, inadequate, though formerly unavoidable for lack o f a
better, and not in its natural, adequate and absolute measure, time----
On the assumptions we have made above, therefore, society will
also not assign values to products. It will not express the simple
fact that the hundred square yards o f cloth have required for their
production, let us say, a thousand hours o f labour in the oblique
and meaningless way, that they have the value o f a thousand hours
of labour. It is true that even then it will still be necessary for society
to know how much labour each article o f consumption requires
for its production. It will have to arrange its plan o f production
in accordance with its means o f production, which include, in par­
ticular, its labour forces. The useful effects o f the various articles o f
consumption, compared with each other and with the quantity
o f labour required for their production, will in the last analysis
determine the plan. People will be able to manage everything
very simply, without the intervention o f the famous ‘value*.1
“ The concept o f value is the most general and therefore the most
comprehensive expression o f the economic conditions o f commodity
production. Consequently, the concept o f value contains the germ,
not only o f money, but also o f all more developed forms o f the
production and exchange o f commodities. . . . The value form o f
products — already contains in embryo the whole capitalist form o f
1 A footnote here reads as follows: “As long ago as 1844 I stated that the above-
mentioned balancing of useful effects and expenditure of labour would be all that would
be left, in a communist society, of the concept of value as it appears in political economy
(Deutsch-Franzosische Jahrbiicher, p. 95). The scientific justification for this statement,
however, as can be seen, was only made possible by Marx’s C apital” Engels’s reference
here is to a passage in his Outlines o f a Critique o f Political Economy which will be found
in F. Engels, Stati i Pisma, 18 38 -18 4 5 (Moscow, 1940), at p. 301.
 REAP PL I C A T I O N OF TH E L A B O U R T H E O R Y 259

production, the antagonism between capitalists and wage workers,

the industrial reserve army, crises. To seek to abolish the capitalist
form o f production by establishing ‘true value* is therefore equivalent
to attempting to abolish Catholicism by establishing the ‘true* Pope,
or to set up a society in which at last the producers control their
products by the logical application o f an economic category which is
the most comprehensive expression o f the subjection o f the pro­
ducers by their own product.
“ . . . The ‘exchange o f labour against labour on the principle
o f equal value’, in so far as it has any meaning, that is to say, the
exchangeability against each other o f products o f equal social
labour, that is to say, the law o f value, is precisely the fundamental
law o f commodity production, hence also o f its highest form,
capitalist production. It manifests itself in existing society in the
only way in which economic laws can manifest themselves in a
society o f individual producers: as a law o f Nature inherent in things
and in external conditions, independent o f the will or intentions
o f the producers, working blindly. B y elevating this law into the
basic law o f his economic commune, and demanding that the
commune should apply it with full consciousness, Herr Diihring
makes the basic law o f existing society into the basic law o f his
imaginary society.**1
That this was also Marx’s view is beyond doubt. The argument
which Engels here advances against Diihring was in essence the
same as that which Marx had advanced thirty years before against
Proudhon.8 Marx consistently denied that the law o f value would
operate after the end o f commodity production. In his notes on a
book by Adolf Wagner, for example, in which the latter had appar­
ently suggested that Marx’s theory o f value constituted “ the corner­
stone o f his socialist system**, Marx unequivocally replied that his
investigations into the theory o f value had reference to bourgeois
relations and not to the application o f the theory to a socialist state.8
And in his Critique o f the Gotha Programme, one o f the few works in
which he went into any detail concerning the characteristics o f socialist
society, Marx again made his opinion quite clear:
“ Within the co-operative society based on common ownership
o f the means o f production, the producers do not exchange their
products; just as little does the labour employed on the products
1 Anti-Duhring , pp. 339-43. 2 See above, pp. 1 4 3 - 4 -
8 Sochineniya, Vol. XV, pp. 456 and 459. In his argument here Marx is referring more
particularly to the ideas of SchafHe. See, e.g., the latter’s The Quintessence o f Socialism
(English edn., London, 1898), chapters 6 and 7, and passim.
260 S T U D I E S I N THE L A B O U R T H E O R Y OF V A L U E

appear here as the value o f these products, as a material quality

possessed by them, since now, in contrast to capitalist society,
individual labour no longer exists in an indirect fashion but directly
as a component part o f the total labour.” 1
Nevertheless, attempts are frequently made to prove that Marx
in fact did hold the view which Wagner apparently imputed to him.
The passages from Marx’s works which are usually cited in this
connection are o f two types. First, there are those in which Marx
briefly touches upon the possibility that under socialism “ the pro­
ducers may eventually receive paper cheques, by means o f which
they withdraw from the social supply o f means o f consumption
a share corresponding to their labour-time” .8 Here there appears
to be at least a formal similarity with the principle which regulates
the exchange o f commodities under capitalism, so far as this is an
exchange o f equal “ values” . But in the Critique o f the Gotha Programme,
in which Marx’s clearest treatment o f this point is to be found, he
explains (a) that the share which the producers withdraw will be sub-
ject to a deduction for the “ common fund” ; (b) that when society
proceeds from the first stage o f communism (now usually called
“ socialism”) to the second stage o f communism (now usually called
“ communism” simpliciter), this principle o f distribution will be
replaced by an entirely different one; and (c) that even in the first
stage both “ content and form” o f the capitalist principle will be
changed, because “ under the altered circumstances no one can give
anything except his labour, and because, on the other hand, nothing
can pass into the ownership o f individuals except individual means
o f consumption” .3 It is quite clear that all this has extremely little
to do with the “ law o f value” . Second, there are several passages
in which Marx discusses the “ balancing o f useful effects and expendi­
ture o f labour” in a planned socialist society. For example, in the
course o f a discussion on the relations between supply, demand and
value under capitalism, he remarks in parenthesis:
“ (Only when production will be under the conscious and pre­
arranged control o f society, will society establish a direct relation
between the quantity o f social labour time employed in the pro­
duction o f definite articles and the quantity o f the demand o f
society for them.)” 4
1 Critique o f the Gotha Programme (English edn.), p. n .
t Capital, V o l. II, p. 4 1a. C f. V o L I, p. 50.
3 Critique o f the Gotha Programme, pp. 10 ff 4 Capital, V oL HI, p. 221.
 R E A P P L I C A T I O N OP TH E L A B O U R T H E O R Y 261

But it is surely illegitimate to cite statements such as this as evidence

for the view that Marx thought that the law o f value would “ come
into its own’* under socialism.1 Nowhere does Marx say, or imply,
that exchange ratios under socialism would he made equal to embodied
labour ratios. The “ law o f value** for Marx was a blind and elemental
law, operating independently o f the will o f man to determine exchange
ratios under commodity production and under commodity production
alone. Marx always refrained, quite deliberately, from going into any
detail concerning the principles according to which the authorities
ought to fix prices under socialism.
There is only one passage that is really at all equivocal. Towards
the end o f Volume III o f Capital, Marx quotes the following statement
by Storch:
“ The salable products, which make up the national revenue,
must be considered in political economy in two ways. They must
be considered in their relations to individuals as values and in their
relations to the nation as goods. For the revenue o f a nation is not
appreciated like that o f an individual, by its value, but by its utility
or by the wants which it can satisfy.**
Marx replies, first, that “ it is a false abstraction to regard a nation,
whose mode o f production is based upon value and otherwise capital­
istically organised, as an aggregate body working merely for the
satisfaction o f the national wants’*; and second, that
“ after the abolition o f the capitalist mode o f production, but with
social production still in vogue, the determination o f value continues
to prevail in such a way that the regulation o f the labour time and the
distribution o f the social labour among the various groups o f pro­
duction, also the keeping o f accounts in connection with this,
become more essential than ever.” 2
The meaning o f this statement, read in its context, seems fairly clear.
To Storch’s suggestion that a nation, as distinct from an individual,
is indifferent to the value o f commodities (i.e., to their cost in terms
o f labour), and interested only in their utility, Marx replies (a) that a
capitalist nation cannot properly be regarded as indifferent to value,
and (b) that even after the abolition o f capitalism the nation will still
be vitally interested in the labour cost o f the goods it produces. Marx
1 Unless, of course, like Mrs. Robinson (Essay on Marxian Economics, p. 23), one re­
moves the brackets from the statement just quoted and juxtaposes it with a subsequent
remark clearly referring to the operation of the law of value under commodity produc­
tion.
* Capital, Vol. ID, pp. 991-2.
262 S T U D I E S I N THE L A B O U R T H E O R Y OF V A L U E

is no doubt thinking here o f the idea, which he and Engels shared,

that the “ 1
be all that would be left, in a communist society, o f the concept o f
value as it appears in political economy” .1 For the purpose o f his
criticism o f Storch, Marx emphasises the “ expenditure o f labour”
side o f this balance. But there is no suggestion at all that prices will
be or ought to be made equal to “ values” under socialism. It is quite
clear from the context that Marx is using the word “ determination”
here to mean something like “ calculation” or “ estimation” , and does
not intend to refer to the rule o f the law o f value as an automatic
and objective social force.
In all their statements concerning the disappearance o f value and
the law o f value under socialism, however, Marx and Engels clearly
had in mind a socialist society in which commodity production had been
abolished. Value and the law o f value were economic categories peculiar
to commodity production; commodity production would disappear
with the coming o f socialism; therefore value and the law o f value
would also disappear with the coming o f socialism. To Marx and
Engels, evidently, socialism and commodity production were mutually
exclusive terms, since the very aim o f socialism was to transfer the
means o f production, now operated by “ private producers more or
less separate from each other” , into the hands o f society as a whole.
Socialism would necessarily destroy the basis o f commodity produc­
tion, and thereby enable the end o f the reign o f the law o f value to be
brought about. “ The seizure o f the means o f production by society” ,
said Engels, “ puts an end to commodity production, and therewith
to the domination o f the product over the producer.” 2
Marx and Engels were o f course aware that the socialist revolution
might take place under conditions where the seizure o f all the means
o f production by the victorious proletariat would not be politically
or economically possible. For example, in his article on The Peasant
Question in France and Germany, written in 1894, Engels spoke as follows
o f the policy which the proletariat should adopt towards the
peasantry:
“ When we are in possession o f state power we shall not even
think o f forcibly expropriating the small peasants (regardless o f
whether with or without compensation), as we shall have to do
in the case o f the big landowners. Our task relative to the small
peasant consists, in the first place, in effecting a transition o f his
1 See above, p. 258. 2Anti-Diihring, p. 311.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 263

private enterprise and private possession to co-operative ones, not

forcibly but by dint o f example and the proffer o f social assistance
for this purpose.” 1
Under such circumstances, in a country with a substantial peasant
population, the fact that the victorious proletariat would be unable
to seize all the means o f production might conceivably mean the
continuance, in a limited sphere but possibly for some considerable
time, o f “ commodity production” in the technical Marxian sense,
and therefore o f the reign o f the law o f value. Marx and Engels
themselves do not seem to have given specific attention to this possi­
bility— partly, no doubt, because they usually assumed that the typical
socialist revolution would occur in a fairly advanced capitalist country
which had 110 really serious “ peasant problem” , but more particularly
because they deliberately framed their comparisons between capitalism
and socialism in very general terms, without making much attempt
to distinguish between the different conditions under which socialism
might be established and developed in different countries and at
different times. They were mainly concerned to contrast capitalism
with socialism as such— with the essence o f socialism, as it were, rather
than with socialism in this or that country at this or that stage o f
development. After the Russian revolution, however, for obvious
reasons, the problem o f the “ operation o f the law o f value” in Soviet
society came to be the subject o f intense and prolonged debates
in the U.S.S.R. The fact that the theoretical question was necessarily
bound up with the practical question o f the policy to be adopted
towards die peasantry goes far to explain not only the great importance
which has been attached to it in the U.S.S.R. during the whole
period from 1917 to the present day, but also the violent disagreements
and changes of attitude which have marked the gradual emergence
o f the particular set o f ideas on the subject which has now come to be
generally accepted.
Bukharin, in his Economics o f the Transition Period, published in
1920, wrote as follows:—
“ Theoretical political economy is the science o f a social economy
based on the production o f commodities, i.e., the science o f an un­
organised social economy. . . . The end o f capitalist-commodity
society will also be the end o f political economy.” 2
1 Marx and Engels: Selected Works, V o l. II (English edn., M o sco w 1951), p. 393.
2 Translated fro m Lenin’s Zamechaniya na Knigu N . Bukharina “ Ekonomika Perekhodnovo
Perioda'\ 2nd edn. (M oscow , 1932), p. 6,
2 Č4 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

This view, which the experience o f War Communism in the U.S.S.R.

must have done much to encourage, w as o f course based on the
traditional idea that many o f the leading categories o f Marxian
political economy— commodity, value, profit, wages, etc.— would
have no relevance in an “ organised” socialist economy, where the
conscious planning o f economic life had replaced the operation o f the
blind laws o f the market characteristic o f “ unorganised” capitalism.
It was perfectly true, o f course, as Lenin pointed out in one o f his
marginal notes to Bukharin’s book, that the definition of political
economy given by Bukharin represented “ a step backwards from
Engels” .x Engels, it will be remembered, had defined political economy
(in what he called the “ wider sense” ) as “ the science o f the conditions
and forms under which the various human societies have produced and
exchanged and on this basis have distributed their products” .2 But
he had hastened to add that “ political economy in this wider sense
has still to be brought into being” , since “ such economic science as
we have up to the present is almost exclusively limited to the genesis
and development o f the capitalist mode o f production” .3 And in
1920 there was still no real sign o f that wider and more general political
economy whose development Engels had prophesied. “ Political
economy” , to all intents and purposes, still meant the political economy
o f capitalism. In addition, there was an evident and natural desire
on the part o f Soviet intellectuals and publicists at this time to lay
special emphasis on the importance o f the differences between a planned
and an unplanned economy. For these reasons, Bukharin’s thesis
appeared sufficiently plausible in 1920 to command a wide measure
o f acceptance among Marxist economists both inside and outside
the U.S.S.R. In a planned socialist economy, it was often said, political
economy would disappear. Its place might be taken by some other
science— “ social engineering” was one o f the terms used by Bukharin,
Preobrazhensky and others4— but whatever it was, this new science
•yvould not be political economy.6
Lenin, commenting on Bukharin’s statement that “ the end o f
o f capitalist-commodity society will also be the end o f political
economy” , asked whether the relation v1-\-s1-=c2 would not hold
1 Zamechaniya, p. 6. 2 Anti-Duhring, p. 168. (My italics).
8 Ibid., pp. 168-9.
4 See the article by Adam Kaufman, “The Origin of ‘The Political Economy of Social­
ism* ”, in Soviet Studies, January 1953, pp. 245 ff.
6 See e.g., A n Outline o f Political Economy, by I. Lapidus and K. Ostrovitianov (English
edn., 1929), p. 4.
 RE A P P L I C A T I O N OF THE L A B O U R T H E O R Y 265

even under pure communism.1 The comment is pertinent enough,

but it raises an important problem which in one form or another
was to cause considerable controversy in the subsequent years. It
is evident that under “ pure communism” the relation
(or at least the similar relation appropriate to expanded reproduction)
would be established in quite a different way from that in which
it is normally established in a “ capitalist-commodity society” .
Under capitalism, the various balances between different economic
quantities, in so far as they are established at all, are established un­
consciously, elementally, as a sort o f net resultant o f the conflict o f
millions o f different decisions and actions. It makes good sense under
such circumstances to speak o f these balance* being established as the
result o f the operation o f objective “ economic laws” which act
independently o f the will o f man. But under “ pure communism” ,
the balances would presumably be established by the conscious
action o f the planning authorities, who, recognising that the smooth
development of the economy required the maintenance o f these
balances, would take deliberate steps to bring this about. If, then, as
Lenin’s comment implied, certain “ economic laws” would continue
to operate under pure communism, must it not be said that these
“ laws” would differ in kind—i.e., in their general character— from
those which now operate under capitalism?
Certain aspects o f this problem were brought to the forefront o f
the discussions during the N.E.P. period, when the Soviet economy
was manifestly divided into two sectors— a state-owned sector
characterised up to a point by the “ planning principle” , and a private
sector characterised up to a point by the operation o f “ economic
laws” in the traditional elemental sense. Exchange relations having
been re-established between town and country— i.e., roughly, between
state-owned industry and peasant-owned agriculture— one o f the
basic questions under discussion soon became that o f the extent to
which the state-owned sector was bound by the laws o f the market.
The main question at issue, in other words, was that o f the extent
to which the “ law o f value” could be said to be the chief regulator
o f the Soviet economy considered as a whole. During the earlier
period of N.E.P., apparently, the majority o f writers “ underlined
the preponderance o f the market as a supreme arbiter in the struggle
between plan and spontaneity” . During the later period, naturally
1 Zamechaniya, p. 6. The equation expresses Marx's basic condition of equilibrium
between the two main departments of the economy under conditions of simple
reproduction.
26 6 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

enough, “ plan and market change their place o f importance; the

market becomes a corrective to the plan” .1 The debates on this subject
were often violent, closely linked as they were to the practical problem
o f the policy to be adopted towards the peasantry and to the related
problem o f whether economic planning should be “ genetic” or
“ teleological” in character.2 In this stormy period, controversies over
the most academic-seeming problems, such as that between the
so-called “ mechanists” and “ idealists” over the interpretation o f
Marx’s concept o f abstract labour,3 had important political implica­
tions, o f which the participants in the discussions were usually fully
conscious. Looking back on this period from the standpoint of the
controversies which have taken place in the U.S.S.R. during the
decade just past, we can see the emergence o f certain notions which
were destined to play an important role in these controversies— ■
notably the idea (mentioned in the last paragraph) that the “ economic
laws” o f socialism differ in kind from those of capitalism; the idea
that the category “ value” might continue to exist in a different form
even under full socialism; and the idea that in a system where some
“ private” elements still exist the socialist state “ uses” the law of
value to serve its purposes.
As an example o f one type o f approach which was fairly widely
adopted at this time, we may take the textbook A n Outline o f Political
Economy, by Lapidus and Ostrovitianov, an English edition o f which
appeared in 1929. The authors, in addition to giving a summary o f
the traditional Marxist analysis o f capitalism (as developed by Lenin),
also make an attempt to study “ the laws of Soviet economy” in its
then stage o f development. “ The peculiar feature o f Soviet economy” ,
they write,

“ lies in the fact that it is in transition from capitalism to socialism.

In it are combined planned and anarchic features, socialist elements
and the most varied o f economic forms, from primitive and simple
commodity relationships to private capitalist production. These
factors confront us with a number o f new problems, such as the
extent to which the laws o f capitalist economy still operate in Soviet
economy; the extent to which these laws are being replaced by
planned regulation; the mutual relationships that are being estab-
lished between the planned and the anarchic basis in Soviet economy;
their specific weight (importance), the tendencies o f their develop­
ment, and so on. All these are problems not only o f enormous
1 Kaufman, op. cit., p. 264. 2 Ibid., pp. 266-8. 3 Ibid., pp. 254-6.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 267

theoretical interest, but also problems which are inseparably bound

Soviet State.” 1

The key to the authors’ attitude towards these problems is to be

found in their account o f the manner in which the law o f value
operates in the Soviet economy. In all societies, they argue, the requisite
equilibrium between production and consumption must be brought
about somehow— i.e., the distribution o f labour among the different
branches o f production must somehow be made to correspond with
society’s needs. In capitalist society, this correspondence is achieved
(in so far as it is achieved at all) through the elemental operation o f the
law o f value. In communist society, on the other hand, the necessary
“ labour balance” will be regulated “ not blindly by means o f exchange
on the market by independent commodity-producers, but by the
conscious will o f all society” .2 But the Soviet economy in its present
stage o f development is essentially transitional in character— “ taking
it as a whole it is no longer capitalist, but at the same time it has not
yet been transformed into a wholly socialist economy” . At the present
time, therefore, the law o f value continues to operate, but “ it does
not operate in the form in which it operates in the capitalist system,
since it is passing through the process o f withering away, the process o f
transformation into the law o f ‘expenditure o f labour’ that operates
in socialist society” .3
1 Lapidus and Ostrovitianov, op. cit., p. 4. 8 Ibid., p. 169.
8 Ibid., pp. 169-70. Cf. the following summary of this argument on p. 471: “This law
of proportionality in labour investment is a law of every society, whatever the form
of its productive relations. The only difference is that in different social formations its
operation is manifested in different ways. In capitalist production it operates independently
of the will and consciousness of man, through the law of value; in Communist society
it operates exclusively through the will and consciousness of the people and finds its
expression in the planned measures of the organs concerned. What do we find in Soviet
society? In Soviet society, as in any other, the law of labour expenditure is the basis of
the equilibrium in productive relations. But how and in what form does the law of
value enforce its regulating influence on the productive relations of Soviet society?
In accordance with the transitional character of Soviet economy, the two forms of regula­
tion, the mechanism of the law of value and planned guidance, are merged, the active
principle being planned control, which makes use of the law of value. In so far as the
planning principle is gaming strength, the law of value is transformed directly into the
law of labour expenditure/’ Cf. also ibid., pp. 469-70: “The principle of planning pre­
supposes conscious guidance in, or at least conscious influence on, the economic processes
on the part of public or State organs or individuals. This, of course, must not be taken
to mean that the planning organ which guides the economic processes can do what it
likes. The actions of such an organ are also conditioned by certain causes and are subject
to certain laws. But it is not a blind toy of these laws; on the contrary, the laws operate
through the agency of its will and consciousness. Anarchy, on the other hand, pre­
supposes a regulation of productive relations by means of the blind law of value, regard­
less, and sometimes in spite, of the will and conscious desire of man/'
268 S T U D IE S IN TH E L A B O U R T H E O R Y OF V A L U E

What, then, is the exact nature o f the connection which the authors
believe to exist between the simple commodity producers, the
capitalist enterprises and the socialist State enterprises? Private and
State enterprises are connected with one another through the market.
But the authors emphasise that

“ despite the relative independence o f the State and private enter­

prises communicating with one another through the market,
none the less they cannot be considered as absolutely equal com­
modity owners, like two capitalists in capitalist society. . . . The
fundamental and characteristic feature o f Soviet economy taken as a whole
is the leading role o f State industry, its predominance in the national
economy, which corresponds to the predominance o f the proletariat
in the political sphere.” 1

In order to illustrate this “ leading role o f State industry” , the authors

give a number o f examples o f “ the influence which State enterprises
may bring to bear on the most essential sector o f private enterprise,
namely on peasant production” .2 But “ the struggle which the Soviet
State carries on with the blind forces o f the market” must not be over­
simplified. “ In Soviet production” , the authors state, “ the planned
element does not mechanically restrict and squeeze out the law o f
unconscious regulation. . . . The Soviet State realises its influence
on market relations through the operation o f the blind laws o f the market,
and by forcing them to operate along lines desirable to the State.” 3
For example, if an extension o f flax sowing is desired, this can be
achieved under present conditions “ only by raising the price o f flax,
and so making its production more profitable” .4 Such an action, the
authors argue,

“ will not be equivalent to the elimination o f the law o f value, but

only an intelligent manipulation o f that law by the State.
“ Thus the deliberate and planned regulation o f the Soviet State
amounts to its taking into account the law o f value and availing
itself o f it, directing its operation along the way o f strengthening
and developing the socialist economic elements.” 6

So far as exchanges between State enterprises are concerned there

will usually be a “ superficial form o f sale and purchase” here, but
the same productive relationships will not lie beneath this form as lie
beneath value, since the State enterprises are not “ independent
1 Lapidus and Ostrovitianov, op. c i t p. 172. 2 Ibid.
3 Ibid., p. 175. * Ibid., p. 175. 3 Ibid., p.176.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 269

owners” . Nevertheless, the relative prices o f commodities exchanged

between State enterprises cannot be fixed arbitrarily, since “ it is
obvious that here the influence o f the market is felt, though indirectly” .
The price o f a locomotive, for example,

“ will largely depend on the wages o f the workers, and the level
o f those wages, even with their deliberate regulation, depends on
the prices o f articles o f prime necessity, on which the anarchy of
market exerts great influence. In determining the price o f the
locomotive the reaction o f that price on the cost o f transport o f
commodities sold to the peasantry, and consequently on the price
o f those commodities, etc., has also to be taken into account.”

The authors emphasise, however, that “ the influence o f value will

here be purely superficial and will not strike at the very essence
o f the relations between the various parts o f the Soviet State
economy” .1
The launching o f the first Five-Year Plan and the collectivisation
campaign, together with the necessity for defending these measures
against the “ geneticists” and others, made the atmosphere unfavourable
for the further development o f ideas concerning the “ operation o f
the law o f value” in the Soviet economy. After the official declaration
in 1936 that a socialist form o f organisation had at last been achieved
in the U.S.S.R., the main emphasis shifted to a study o f the regularities
observable in a socialist economy in which the “ principle o f planning”
definitely predominated.2 Little more was heard o f the limitations
to which the actions o f the planners were necessarily subject (whether
due to the “ operation o f the law o f value” or to anything else) in an
economy o f die type which existed in the U.S.S.R.
In 1943 an important unsigned article entided Some Questions on
the Teaching o f Political Economy appeared in a Soviet journal.3 This
article, which endeavoured to establish a basic distinction o f kind
between the economic “ laws” o f capitalism and the economic “ laws”
o f socialism, indicated the main lines which published discussion
was to follow in the U.S.S.R. for almost a decade. Following Engels’s
“ wider” definition o f political economy, the authors o f the article
1 Lapidus and Ostrovitianov, op. tit., pp. 176-7.
2 C£ J. Miller, in Soviet Studies, April 1953, pp. 412 f f
8 Hie article will be found in Pod Znamenem Marksizma (“ Under the Banner of Marx­
ism”), No. 7-8,1943. The quotations below are taken from an English translation which
was published in the American Economic Review of September 1944, pp. 501 ff. The article
caused a great deal of discussion abroad, particularly in the United States. See, e.g., the
numerous articles in Vols. 34 and 35 (1944 and 1945) of the American Economic Review
270 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

state that “ political economy is the science o f the development o f mens

social-productive, i.e., economic relations. It explains the laws which govern
production and distribution o f the necessary articles o f consumption— personal
as well as produđive— in human society in the different stages o f its develop­
ment."1 What, then, are the essential differences, if any, between
the economic “ laws” which operate in the capitalist stage o f develop­
ment and the economic “ laws” which operate in the socialist stage?
“ It is an elementary truth” , the article states,

“ that a society, whatever its form, develops in accordance with

definite laws which are based on objective necessity. This objective
necessity manifests itself differently under different forms of society.
Under capitalism objective necessity acts as an elemental economic
law manifesting itself through an infinite number of fluctuations,
by means o f catastrophes and cataclysms and disruption o f produc­
tive powers. Under the conditions o f the socialist method o f pro­
duction, objective necessity acts quite differently. It operates as an
economic law which is conditioned by the entire internal and
external state o f the particular society, by all the historical prere­
quisites o f its evolution; but it is an objective necessity known to,
and working through the consciousness and will o f men, as rep­
resented by the builders o f a socialist society, by the guide and lead­
ing force o f the society— the Soviet state and the Communist
Party, which guides all the activity o f the toiling masses.
“ Thus the economic laws o f socialism emanate from the real
conditions o f the material life o f socialist society, from the total
internal and external conditions o f its development. But these
laws are not realized spontaneously, nor o f their own accord, but
operate as recognized laws consciously applied and utilized by the
Soviet state in the practice o f socialist construction.” 2

This distinction, which as we have already seen was quite familiar to

the disputants o f the ’ twenties, leads the authors to the conclusion that
the economic laws o f socialism “ in their character, content, method o f
action are fundamentally different from the economic laws o f capital­
ism” .3 This view pervades the whole o f the rest o f the article. Having
described industrialisation and the collectivisation o f agriculture as
“ laws o f the socialist development o f our society”— industrialisation
1 American Economic Review , September 1944 (hereafter AER), p. 504. This definition
is substantially the same as that later adopted in the official Textbook of Political Economy
published in Moscow in 1954 (p. 10). Cf. Stalin’s interesting discussion of the latter
definition in his Economic Problems o f Socialism in the U .S .S .R . (English edn., 1952),
pp. 78-82.
* A E R , p. 514. * A E R , p . 518.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 271

and collectivisation being “ economic necessities” which were “ recog-

nized in time by our Party and the working class” 1— the authors
proceed to discuss the question o f the operation o f the “ law o f value”
under socialism. “ There is no basis” , they state,
“ for considering that the law o f value is abrogated in the socialist
system o f national economy. On the contrary, it functions under
socialism but it functions in a transformed manner. Under capital-
lism the law o f value acts as an elemental law o f the market, in­
evitably linked with the destruction o f productive forces, with
crises, with anarchy in production. Under socialism it acts as a law
consciously applied by the Soviet state under the conditions o f the
planned administration o f the national economy, under the condi­
tions o f the development o f an economy free from crises.” 2
The basic arguments by which this conclusion is reached are by no
means clear. Under socialism, it is stated, “ the guiding principle o f
social life is distribution according to and based upon tie quantity
and quality o f work performed. That means that labour continues
to be the measure in economic life. Naturally, it follows that the
law o f value under socialism is not abrogated but continues to exist,
although it functions under different conditions, in a different environ­
ment and, when compared with capitalism, reveals most radical
differences.” 3 From this and the argument which follows, one gathers
that in the opinion o f the authors die Soviet state is “ using the law o f
value” when it distributes the national product “ to each according
to his labour” . For such a distribution, we are told, requires the
comparison o f different qualities o f labour, and this comparison can
only be made indirecdy “ by means o f accounting and comparison
o f the products o f labour, o f commodities” .4 It is “ using the law o f
value” , too, when it “ sets as its goal the establishment o f commodity
prices based on the socially-necessary costs o f their production” ,6
even though these prices are fixed “ with certain deviations from their
values, corresponding to the particular objectives o f the Soviet state,
1 AER, p. 517. As J. Miller remarks (op. cit., p. 419), “from economic necessity to law
is a step taken without any argumentation whatever.”
2 AER, p. 525. The idea that the law of value is abrogated under socialism, the authors
state, was “widely current” in former years. “In former teaching practices” , they write,
“there was widely current in the curricula and textbooks an entirely erroneous idea that
from the first day of the socialist revolution all laws and categories of the economics of
capitalism lose their force and cease to function. It is evident that the matter is much
more complex. In particular, in our instruction and textbook literature the incorrect
idea took root that in the economics of socialism there is no place for the law o f value”
(P- 519).
8 AER, p. 521. 4 AER, p. 522. 8 AER, p. 523.
272 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E

and the quantity o f commodities o f various kinds which can be sold

under the existing scale o f production and the needs o f society” .1
“ Cost accounting’*, again, is “ based on the conscious use o f the law
o f value.” 2 The facts that “ in the Soviet economy there exist. . . two
markets and two kinds o f prices” ,8 and that “ a struggle goes on
between the organized market, which is in the hands o f the Soviet
state, and the elemental forces o f the unregulated market” ,4 are
mentioned but not emphasised; and one definitely gets the feeling
that in the opinion o f the authors the operation o f the “ law o f value”
(in the rather amorphous sense in which they use that expression)
under socialism is not at all dependent, or at least not directly depen­
dent, upon the co-existence o f these “ two markets” . It is only when
a transition from distribution according to labour to distribution
according to need becomes possible, the authors insist, that the reign
o f the “ law o f value” will cease.5 Behind this argument, no doubt,
lies the idea that the Soviet state, in its distributive and pricing activities,
is recognising certain “ objective necessities” which can usefully be
described in terms o f the operation o f a “ transformed law o f value” .
But the logic o f the argument is dubious; the use o f the term “ com­
modities” to describe the products o f labour under socialism is arbi­
trary and inconsistent;8 and the burden of the argument as a whole is
exceedingly obscure.
It is easy to conceive o f circumstances in which the main thesis
o f the 1943 article might become politically dangerous. The authors’
insistence on the fact that the economic laws o f socialism, as distinct
from those of capitalism, “ work . . . through the consciousness and
will of men” , etc., leads them, as we have seen, to classify such things
1 AER, pp. 523-4. 2 AER, p. 524. 8 AER, p. 523.
4 AER, p. 524. “In order to be the complete master over the market”, the authors
add here, “and to be able completely to dictate market prices, the Soviet state would
have to have at its disposal enormous masses of commodities, enormous reserves of all
sorts of goods.” But this point is not followed up.
6 AER, pp. 526-7.
8 According to the Marxian account, as we have seen, the “law of value” and commod­
ity production are inseparably connected. The authors of the article therefore probably
felt themselves obliged, when arguing that the “law of value” (in a transformed form)
still operated in the U.S.S.R., to define the products of labour as commodities. Neverthe­
less, at the close of the section on the law of value, they remark that “labour power,
land, and the most important means of production (equipment of factories, plants,
machine tractor stations, state farms, etc.) are no longer commodities in a socialist society”
(p. 527). Does the law of value, then, not apply to the means of production? The sentences
which follow the statement just quoted suggest that in the view of the authors it does so
apply, but the explicit statement that the most important means of production are not
commodities tends to undermine the main argument of the preceding section. Cf. Miller,
op. cit.t p. 421.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 273

as industrialisation, collectivisation, and even planning itself1 as “ laws”

o f socialist development. This comes very close indeed to a virtual
identification o f “ economic law” under socialism with government
economic policy. And such an identification was in fact more or less
openly made by a number o f economists and publicists during the
years after the publication o f the 1943 article. “ The state plan” , wrote
Voznesensky in 1948, “ has the force o f a law o f economic development
because it is based on the authority and practice o f the entire Soviet
people organized into the state. . . . Socialist planning, based on
the rational utilization and application o f the economic laws o f
production and distribution, is in itself a social law o f development
and as such a subject o f political economy.” 2 Such a view is evidently
the product o f an over-optimistic period in which, as Stalin was later
to put it, people “ begin to imagine that Soviet government can
‘do anything’, that ‘nothing is beyond it’, that it can abolish scientific
laws and form new ones” .3 But it is a dangerous view, because it
may encourage the advocacy o f economic policies which take too
little account of the limitations imposed by objective reality. And
there is some evidence to suggest that it did in fact come to be associated
with the advocacy o f “ adventurist” policies, particularly in relation
to agriculture, in the early post-war period o f reconstruction and
development in the U.S.S.R.4
The authors o f the 1943 article were in effect trying to pursue two
more or less separate aims. In the first place, they were attacking the
doctrine, which had apparently achieved a certain amount o f popular­
ity during the previous decade, that “ under the conditions o f the
proletarian dictatorship it would be possible to set up laws o f economic
development arbitrarily, without taking economic factors and material
prerequisites into consideration, in isolation from the totality o f the
conditions which determine the level o f economic development” .5
The 1943 article pointed out, albeit not very emphatically, that
although the “ necessities” which the socialist state recognised worked

1 “For socialism planned administration of the economy is not a question of volition

or caprice but an objective economic necessity” (AER, p. 518).
2 N. Voznesensky, War Economy o f the U .S .S .R . in the Period o f the Patriotic War (English
edn., Moscow. 1948). pp. u s and 120.__________________________________
3 Economic Problems o f Socialism in the U .S .S .R . (hereafter EP), p. 13.
4 See my article “ Stalin as an Economist” , in Review o f Economic Studies, V o l XXI (3),
X953 - 5 4 , at pp. 234-5.
6 K. Ostrovitianov, in an article in Bolshevik , No. 23-24, December 1944. The
quotation is from an English translation of the article appearing in Science and Society,
Summer 1945, p. 234.
274 S T U D I E S IN THE L A B O U R T H E O R Y OF VALUE

through and not independently o f the will and consciousness o f man,

they were none the less objective necessities for that.1 In the second
place, the authors were trying to give theoretical expression to the
fact that the Soviet economy was now basically a planned economy,
and that the power of the state to influence the development o f the
economy directly and consciously in predetermined directions,
although by no means unlimited, was far greater in the U.S.S.R.
than it was in capitalist countries. Unfortunately, however, as we have
seen, some o f the theoretical concepts which they put forward in order
to give expression to this fact, when taken to their logical conclusion,
tended to give encouragement to the further growth of that very
*‘voluntarism” which it seems to have been one of their aims to attack.
Evidently a new approach to the problem was called for. In November
1951 a conference o f Soviet economists was held at which the various
problems involved were debated. The materials o f the conference,
including a “ Memorandum on Disputed Issues” , were apparently
sent to Stalin, who wrote a set o f “ Remarks” on these issues. These
“ Remarks” seem to have been widely circulated among those con­
cerned. A number of economists submitted criticisms of Stalin's
“ Remarks” , and in October 1952 Stalin's replies to some of these
criticisms, together with the “ Remarks” themselves, were published
under the title Economic Problems o f Socialism in the U .S.S.R . In essence,
what Stalin did in this interesting work was to reinforce the attack
on “ voluntarism” by giving a more realistic account of the “ laws”
which limited the activities o f the Soviet planners, and in particular
by emphasising the importance o f the limitations caused by the
continued existence o f a semi-private agricultural sector alongside
the state sector. But to say no more than this would be to minimise
both the theoretical and the practical importance of Stalin's con­
clusions, and a fuller account o f his analysis must be given.
Stalin begins by rehabilitating the normal commonsense concept
o f “ law” . “ Marxism” , he argues, “ regards laws o f science— whether
they be laws o f natural science or laws o f political economy— as the
reflection o f objective processes which take place independently o f
the will o f man. Man may discover these laws, get to know them,

1 Cf. AER, p. 514: “To deny the existence o f economic laws under socialism is to
slip into the most vulgar voluntarism which may be summarized as follows: in place
of an orderly process of development there is arbitrariness, accident and chaos. Naturally,
with such an approach every standard of judgment of one doctrine or another or one
practice or another is lost; there is lost the comprehension of the conformity of pheno­
mena in our social development to established laws.”
 RE A P P L I C A T I O N OF THE L A B O U R T H E O R Y 275
interests o f society, but he cannot change or abolish them. Still less

as under capitalism, Stalin maintains, “ the laws o f economic develop­

ment, as in the case o f natural science, are objective laws, reflecting
processes o f economic development which take place independently
o f the will o f man” .2 It is true, he agrees, that the majority o f economic
laws (as distinct from the laws o f natural science) are impermanent,
operating only for a definite historical period and then giving place
to new laws. However, “ these laws are not abolished, but lose their
validity owing to the new economic conditions and depart from
the scene in order to give place to new laws, laws which are not
created by the will o f man, but which arise from the new economic
conditions” .3 Stalin then goes on to refer to Engels’s statement that
under socialism “ man will obtain control o f his means o f production,
that he will be set free from the yoke o f social and economic relations
’and become the ‘master* o f his social life” . Engels calls this freedom
“ appreciation [or ‘recognition’— R.L.M.] o f necessity” . “ What
can this ‘appreciation o f necessity’ mean?” , asks Stalin. “ It means
that, having come to know objective laws (‘necessity’), man will
apply them with full consciousness in the interest o f society. . . .
Engels’s formula does not speak at all in favour o f those who think
that under socialism economic laws can be abolished and new ones
created. On «4he contrary, it demands, not the abolition, but the
understanding o f economic laws and their intelligent application.” 4
Nor is it true, Stalin proceeds to argue, “ that economic laws are
elemental in character, that their action is inavertible and that society
is powerless against them” ; or that “ the specific role o f Soviet govern­
ment in building socialism . . . enables it to abolish existing laws o f
economic development and to ‘form’ new ones” ;5 or that economic
laws can be “ transformed” under socialism.6 In his reply to a criticism
by Notkin, again, Stalin opposes the view that his postulate concerning
the utilisation o f economic laws in the interests o f society “ cannot
be extended to other social formations, that it holds good only under
socialism and communism, that the elemental character o f the
economic processes under capitalism, for example, makes it impossible

1 EP, p. 6. 2 EP, pp. 7-8. 3 EP, p. 8.

* EP, pp. 8-9. 5 EP, p. 9.
6 EP, pp. H -12 . “If they can be transformed” , Stalin argues, “ then they can be abol­
ished and replaced by other laws. The thesis that laws can be ‘transformed* is a relic of
the incorrect formula that laws can be ‘abolished’ or ‘formed’.”
7 EP,p. 54-
276 S T U D IE S I N THE L A B O U R T H E O R Y OP V A L U E

And in his reply to Sanina and Venzher he attacks the view that “ only
because
material production do the economic laws o f socialism arise’
Leaving no loopholes, then, Stalin decisively rejects the main
thesis o f the 1943 article— the idea that the economic laws o f socialism
differ from those o f capitalism in their general character as well as in
their specific content. A ll economic laws are truly “ objective” in
character, and reflect processes taking place independently of the will
o f man. It is important to note, however, that Stalin in effect agrees
with the authors o f the 1943 article that it is “ quite un-Marxist”
to include in the category “ economic law” only those laws which
operate elementally, “ after the fashion o f a house falling down on
your head” .2 He is quite prepared to include under the term “ law”
certain “ objective necessities” which the authors o f the 1943 article
would have classified as “ working through the consciousness and will
o f men” . He speaks, for example, o f the “ objective economic law o f
balanced, proportionate development o f the national economy” . This
law, he says, “ arose from the socialisation o f the means o f production,
after the law o f competition and anarchy o f production had lost its
validity. It became operative because a socialist economy can be
conducted only on the basis o f the economic law o f balanced develop­
ment o f the national economy.” ® In other words, the planning
authorities are confronted with the “ objective necessity” o f securing
and maintaining certain balances and proportions between different
branches o f the economy— and this “ objective necessity” , arising as it
does from the very nature o f the socialist economy, ought to be
regarded as a “ law” which operates independently o f the will o f man.
What Stalin is primarily concerned to emphasise is that it is improper
to base a distinction between “ laws” o f this type and “ laws” which
operate elementally on the alleged fact that the former “ work through
the consciousness and will o f men” whereas the latter do not. Such a distinc­
tion can legitimately be made only on the basis o f differences in the
degree to which men get to know economic laws and utilise them in the
interests o f society. And “ laws” do not differ in general character merely
because in one case they are utilised in the interests o f society and in

their effects elementally, or whether they are utilised in the interests

o f society, they remain objective laws, which must be conceived as
existing and operating independently o f the will o f man. Nor can an
1 EP, p. 93, * AER, p. 513. * EP, p. 11,
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 277

absolute distinction be made in this respect between the economic

«
are
in one degree or another utilized in the interests o f society not only
under socialism and communism, but under other formations as well” .1
It was no doubt very important that these points should be made in a
document which seems to have been largely designed to counteract
a certain “ dizziness with success” which had apparently been mani­
festing itself in various ways in the U.S.S.R. since the end o f the war.
Proceeding to the question o f commodity production under
socialism in the U.S.S.R., Stalin draws attention in the following
passage to the chief factor in the situation:
“ Today there are two basic forms o f socialist production in our
country: state, or publicly-owned production, and collective-
farm production, which cannot be said to be publicly owned. In
the state enterprises, the means o f production and the product
o f production are national property. In the collective farm, although
the means o f production (land, machines) do belong to the state,
the product o f production is the property o f the different collective
farms, since the labour, as well as the seed, is their own, while the
land, which has been turned over to the collective farms in perpetual
tenure, is used by them virtually as their own property, in spite
o f the fact that they cannot sell, buy, lease or mortgage it.
“ The effect o f this is that the state disposes only o f the product
o f the state enterprises, while the product o f the collective farms,
being their property, is disposed of only by them. But the collective
farms are unwilling to alienate their products except in the form
o f commodities, in exchange for which they desire to receive the
commodities they need. At present the collective hums will not
recognize any other economic relation with the town except
the commodity relation— exchange through purchase and safe.
Because o f this, commodity production and trade are as much a
necessity with us today as they were thirty years ago, say, when
Lenin spoke o f the necessity o f developing trade to the utmost.” 2
Stalin is apparendy using the terms “ commodity production” and
“ commodity relation” in something very closely approximating
to their original Marxian sense. “ Commodity production” in this
sense requires two main conditions: first, separate ownership o f such
o f the means o f production, or such separate rights o f productive use
over them, as are necessary to provide a basis upon which productive
activity can be carried on by units which are more or less independent
1 EP, p. 55 2 EP, pp. 19-20.
278 S T U D I E S I N THE L A B O U R T H E O R Y OP V A L U E

o f one another; and, second, separate ownership o f the products

relation which exists between the producers o f ‘'commodities” (as so

defined), and which is reflected in the relations manifested between
the commodities themselves in the markets where they are exchanged.
What Stalin is doing is to apply this concept o f a “ commodity relation”
to the existing economic relationships between the collective-farm
sector and the state sector in the U.S.S.R. today, and also, by implica­
tion, to the relationships between the separate productive units within
the collective-farm sector. The collective farms, although they do
not actually own the land on which they work, have been granted
separate rights o f productive use over it, and on this basis they carry
on productive activity more or less independently o f one another,
each unit having a substantial degree of freedom to decide what it
is going to produce and on which o f the available markets it is going
to sell its surplus. And the produce o f each collective farm, o f course,
is its own property. Thus the surplus products o f the collective farms
(and of the private plots of individual farmers), and the manufactured
goods for which they are directly or indirectly exchanged, are alike
commodities, and the relation between their producers is essentially a
commodity relation.1 Stalin’s reapplication o f these traditional Marxist
categories to a type o f socialist society which Marx and Engels did
not specifically analyse constitutes the most original— and most
controversial— part o f the Economic Problems.
“ Wherever commodities and commodity production exist” , Stalin
writes at the beginning of his section on “ The Law of Value under
Socialism” , “ there the law o f value must also exist.” In the U.S.S.R.,
he continues,
“ the sphere o f operation o f the law o f value extends, first o f all,
to commodity circulation, to the exchange o f commodities through
purchase and sale, the exchange, chiefly, o f articles o f personal
consumption. Here, in this sphere, the law o f value preserves,
within certain limits, o f course, the function o f a regulator.” 2
And the sphere o f operation o f the law o f value also extends to pro­
duction. It has no regulating function here, but it nevertheless influences
production, since (as Lapidus and Ostrovitianov had already emphasised
1 Stalin emphasises, however, that “our commodity production is not of the ordinary
type, but is a special kind of commodity production, commodity production without
capitalists". Its sphere of action is relatively narrow, and it “cannot possibly develop
into capitalist production" (EP, pp. 20-1).
*EP, p. 23.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 279

in the ’20’s)1 the prices o f commodities produced by state industry

will depend largely upon wage-costs, which w ill in mm depend
largely upon the prices o f wage-goods— i.e., upon the prices o f
commodities which come under the operation o f the law o f value.2
The trouble, however, Stalin says, is not that production in the
U.S.S.R. is influenced by the law o f value, but that “ our business
executives and planners, with few exceptions, are poorly acquainted
with the operations o f the law o f value, do not study them, and are
unable to take account o f them in their computations” .8 The exact
manner in which the law o f value operates, however, is by no means
made as clear as it might have been— at least to a western economist
who was not present at the discussion o f November 195i ; 4 but the
statement just quoted, and the horrific practical example which Stalin
then goes on to give o f what he calls “ the confusion that still reigns in
the sphere o f price-fixing policy” , seems to suggest that what he is in
effect saying here is that the relative prices o f certain commodities
which are exchanged between town and country in the U.S.S.R. are still
determined by economic forces which in present conditions are to some
extent at least outside the control of the planning authorities; that in
so far as the prices o f commodities are directly or indirectly controlled
or influenced by the state, they must be controlled or influenced
with a careful eye to the incentives which depend upon them, to the
overall balance of the economy, and, generally, to what we might
call the “ economic realities” ; and, finally, that the influence which
the state exerts on collective-farm market prices should be economic
rather than administrative in character.5 The law o f value, then,
1 See above, p. 269.
2 This, at any rate, is my interpretation of the following statement by Stalin: “The
law of value has no regulating function in our socialist production, but it nevertheless
influences production, and this fact cannot be ignored when directing production. As
a matter of fact, consumer goods, which are needed to compensate the labour power
expended in the process of production, are produced and realized in our country as
commodities coming under the operation of the law of value. It is precisely here that the
law of value exercises its influence on production. In this connection, such things as cost
accounting and profitableness, production costs, prices, etc., are of actual importance
in our enterprises. Consequently, our enterprises cannot, and must not, function without
taking the law of value into account” (p. 23).
3 EP, p. 24. * Cf. Economic Journal, September 1953, p. 722.
5 Cf. A. I. Mikoyan, Measures for the Further Expansion o f Trade, etc. (English edn.,
Moscow I9S4). p. 77: “To some extent the anarchy of the market exists in the collective-
farm market. If the regulating economic influence of the state is relaxed, collective-farm
prices in this or that market may rise. We exercise, and must exercise, economic influence
upon collective-farm market prices, but not administrative influence. The employment
of the economic lever is a somewhat more complicated matter than the exercise of the
administrative lever, but it fully guarantees for us a normal price level in the collective-
farm market, provided the state uses the economic lever properly, in a flexible manner,
280 S T U D IE S I N THE L A B O U R T H E O R Y OF V A L U E

according to Stalin, is not “ transformed” under socialism, as had

the same way as it does under capitalism, though the conditions in

which it operates are different and its operation is therefore restricted.
In the U.S.S.R. its sphere o f operation is “ strictly limited and placed
within definite bounds” * by virtue o f the fact that the means o f
production in both town and country have been socialised. This
means that the law o f value does not function in the U.S.S.R. as “ the
regulator o f production” 8 or as the regulator of “ the ‘proportions*
o f labour distributed among the various branches o f production” .4
The continued operation o f the law o f value in the U.S.S.R.,
then, according to Stalin, is due to the continued existence o f a
“ commodity relation” between agriculture and industry. It was
precisely this feature o f present-day Soviet economic organisation
which much o f the published writing o f the previous decade on the
law o f value had tended to ignore or to play down. The assumption
implicit in the Economic Problems that this basic economic relation
between town and country would continue to exist substantially
unaltered for some time to come was no doubt based on a major
policy decision which it was part o f the function o f Stalin’s work to
announce and popularise. Stalin argues firmly against the proposal
made by “ some comrades” to “ nationalize collective-farm property” ,
and suggests that the job o f “ raising collective-farm property to the
level o f public property” should rather be tackled by a gradual
extension o f the so-called “ products-exchange” system, the rudiments
o f which already exist in the U.S.S.R.5 The abolition o f commodity
production by the use o f this method is postulated by Stalin as one
o f the essential preconditions o f the transition from socialism to com­
munism.6 Once the two basic production sectors which exist side by
side today have been replaced by “ one all-embracing production
sector” ,7 commodity production and circulation will disappear,
and with them will also disappear value and the law o f value. It is
incorrect, Stalin argues, to suggest that under communism the law
and takes the situation in the collective-farm market into account/’ For some recent
examples of the influence which the approach described in the text is having on price-
fibdng policy in the U.S.S.R., see my article in the October loss issue of Oxford
Economic Papers.
1 The post-1943 literature frequently claimed Stalin’s authority for the view that the
law o f value had been “transformed” . But there does not appear to be anything in Stalin’s
published work to support such a claim, and it seems very likely that this invocation of
Stalin’s authority was purely conventionaL
*E P,p. 25. »EP, p. 26. 4 EP, p. 27.
5 EP, pp. 20, 96, 103-4 and passim. 6 EP, pp. 75 -& 7 EP. P- 20.
 R E A P P L I C A T I O N OP THE L A B O U R T H E O R Y 28 l
o f value will retain “ its function as a regulator o f the relations between
the various branches o f production” . Value, liWe the law of value,
Stalin maintains, is “ a historical category connected with the existence
o f commodity production. W ith the disappearance o f commodity
production, value and its forms and the law o f value will also dis­
appear.” And his description o f the state o f affairs which will exist
under communism is also completely within the traditional Marxian
framework:
“ In the second phase o f communist society, the amount o f labour
expended on the production o f goods will be measured not in a
roundabout way, not through value and its forms, as is the case
under commodity production, but directly and immediately—
by the amount o f time, the number o f hours, expended on the
production o f goods. As to the distribution o f labour, its distribution
among the branches o f production will be regulated not by the law
o f value, which will have ceased to function by that time, but by
the growth o f society’s demand for goods. It will be a society in
which production will be regulated by the requirements o f society,
and computation o f the requirements o f society will acquire para­
mount importance for the planning bodies.” 1
It will be seen from the above account, then, that there has been
little dispute among Marxists regarding the question o f the operation
o f the law o f value under communism. With few exceptions, all Marxists
from Marx himself to Stalin have agreed that the law o f value will not
operate under communism. The only dispute has been over the
question o f its operation under socialism in countries like the U.S.S.R.,
where collective-farm property exists side by side with state property
and important obstacles therefore exist to “ the full extension of
government planning to the whole of the national economy, especially
agriculture” .2 The question as to whether the law o f value would
continue to operate under socialism in countries like Britain, where
there would presumably be no need for a “ collective-farm comprom­
ise” such as that which was found necessary in the U.S.S.R., has not
yet been seriously debated. If we assume, as Marx did, that the law
o f value can operate only on the basis o f commodity production,
the problem o f the status o f goods entering into international trade
(abstracted from in the above survey)3 becomes all-important. If such
goods were classified as “ commodities” in the technical Marxian
sense— as presumably they would have to be, at least initially— then
1 EP, pp. 26-7. 8 EP, p. 76.
8 But not abstracted from by Stalin— see EP, pp. 14-15 and 59.
282 S T U D I E S I N TH E L A B O U R T H E O R Y OF V A L U E

the law o f value would to some extent continue to operate so far as

ought to say that commodity production (and therefore the operation

o f the law o f value) would finally disappear only when an internal
“ all-embracing production sector” had been achieved inside all
countries like the U.S.S.R., and when, in addition, world production
was controlled by a single international economic organisation.
The main theoretical propositions in the Economic Problems which
I have considered above were probably intended by Stalin not as final
answers to the problems involved, but rather as indications of the new
paths which he believed that further research into these problems
should follow. It cannot be said, however, that Marxist economists,
either inside or outside the U.S.S.R., have yet been particularly diligent
in following these paths. Part o f the reason for this, no doubt, is the
position o f unique authority which Stalin’s statements on theory and
policy assumed in the U.S.S.R. during the last twenty years o f his life.
With one or two not very important exceptions, the published Soviet
discussions on Stalin’s Economic Problems which I have so far seen con­
sist o f little more than extended repetitions o f Stalin’s propositions,
often in the identical words o f the original, adding little or nothing by
way o f clarification or elaboration. This also applies to the official
textbook on political economy which was eventually published in
1954. The section o f the textbook dealing with the socialist mode o f
production, while it undoubtedly represents a great advance over
previous accounts, makes no real attempt to answer the important
questions which Stalin’s Economic Problems had raised. In the field o f
economic theory, as in other fields, it is becoming fairly evident that
the particular method o f developing Marxism adopted in the U.S.S.R.
during the ’thirties and ’forties, however necessary it may then have
been, is now hindering progress rather than promoting it.

*As this book goes to press, however, it is becoming clear that a

welcome and radical change in Soviet intellectual life is taking place.
The speeches made at the Twentieth Congress o f the Soviet Com­
munist Party indicate that in the opinion o f the leadership the time is
now ripe for a critical reassessment o f past work, including the work
and position o f Stalin himself, and for an end to the exaggerated respect
for authority which has so often disfigured Soviet work in such fields
as economic theory. Take, for example, the following extract from a
speech by Suslov:
 R E A P P L IC A T IO N OF THE L A B O U R T H E O R Y 283

4‘Dogmatism and doctrinairism have become widespread because

life. The essence o f the evil disease called doctrinairism is not simply
that those infected with it cite quotations all the time whether they
fit in or not; they consider as the supreme criterion o f their correct­
ness not practical experience but the pronouncements o f authorities
on one or another question. They lose the taste for studying concrete
life. Everything is replaced by the culling o f quotations and their
artful manipulation. The slightest deviation from a quotation is
regarded as a revision o f fundamental principles. This activity o f the
doctrinaires is not merely futile, it is harmful.
“ There is no doubt that the cult o f the individual greatly pro­
moted the spread o f dogmatism and doctrinairism. Worshippers o f
the cult o f the individual ascribed the development o f the Marxist
theory only to certain personalities and fully relied on them. As for
all the other mortals, they had allegedly to assimilate and popularize
what was created by these personalities. The role o f the collective
thought o f our Party and that o f fraternal parties in developing
revolutionary theory, the role o f the collective experience o f the
popular masses, was, thus, ignored.” 1

The only specific reference at the Congress to Stalin’s Economic

Problems (apart from a number o f statements from it which were
quoted approvingly by speakers without acknowledgment to Stalin)
seems to have been that made by Mikoyan, who condemned one o f
Stalin’s less important propositions as incorrect,2 and added the
following carefully-phrased remark:
“ Incidentally, it must be pointed out that i f they are strictly
examined some other statements in the Economic Problems also need
deep study and critical re-examination by our economists from the
point o f view o f Marxism-Leninism.” 3

Apart from this open invitation to the economists to join in the work
o f developing Marxian economic theory, nothing further was said on
this subject. A passage from Suslov’s speech, however, indicates one o f
the “ o ther Statements” w h ich the leadership m ay ha ye h aA in mind?
1 For a Lasting Peace, 24 February 1956, p. I I .
* T h e proposition concerned is that on p. 36 o f the Economic Problemst w here Stalin
suggests that fo llo w in g the division o f the w o rld m arket into tw o the volum e o f produc­
tion in the U .S .A ., Britain and France w o u ld contract.
s Pravda, 18 February 1956.
284 S T U D I E S I N TH E L A B O U R T H E O R Y OF V A L U E

“ Economists inadequately study the operation o f the law o f value

in so n a lis t p ro d u c tio n . T h a t n n r a rrjiitp rtst ca rried away by extra—
vagances, gave little thought to what that would cost the people and
that MTS and collective-farm personnel still very often do not figure
the cost o f a ton o f grain or meat is undoubtedly in some measure
due to the fact that our economists have not elaborated the problem
of exactly how the law o f value operates in our economy.” 1

All in all, whatever devices may temporarily be adopted within the

U.S.S.R. to emphasise the importance o f the changes which are
taking place, I do not think that in the long term it will be seriously
disputed that Stalin’s position in history, both as political leader and
as Marxist theoretician, is a very great one. The Economic Problems may
well remain the basis for serious scientific work on the problem o f the
operation o f the law o f value under socialism for some time to come.

3. The Operation o f the “ L a w o f V alue" under M onopoly Capitalism

Hilferding once wrote that “ the realization o f Marx’s theory o f con­
centration, o f monopolistic merger, seems to result in the invalidation
o f Marx’s value theory” .8 Under conditions o f free competition,
as we have seen, the law o f value can be said ultimately to determine
prices even after values are transformed into prices o f production,
since the very deviations o f prices o f production from values can be
explained in terms o f the Volume I analysis. But under monopolistic
conditions, as Marx himself fully appreciated, the price o f a commodity
is “ determined only by the eagerness o f the purchasers to buy and by
their solvency, independently o f the price which is determined by the
general price o f production and by the value o f the products” .3
The deviations o f monopoly prices from values, therefore, are not
explicable in terms o f the Volume I analysis.
The fact that the labour theory o f value as the Classical economists
and Marx developed it cannot explain monopoly prices has been held
against it ever since Ricardo’s time, but so long as reasonably free
competition was the rule and monopoly the comparatively rare
exception this did not constitute a very serious objection. Today,
however, when monopolistic conditions are becoming more and
more widespread (as Marx himself forecast), and when it is frequently
1 For a Lasting Peace, loc. cit.
* Q u o te d in Sw eezy, The Theory o f Capitalist Development, p. 270.
8 Capital, V o l. HI, p. 900.
 RE A P P L I C A T I O N O F T H E L A B O U R T H E O R Y 285

suggested that the traditional analyses o f price based on the assumption

o f free competition ought properly to be replaced (and not merely
supplemented) by an analysis based on the assumption o f ‘ ‘imperfect”
or “ monopolistic” competition, the problem clearly becomes much
more important.
Marx himself, in an interesting passage in the closing section o f
Volume III o f Capital, suggested that even though the actual prices
o f monopolised commodities might be higher than their prices o f
production, the limits within which monopoly conditions could
cause actual prices to deviate from prices o f production were still
fairly strictly determined in accordance with the Volume I analysis:
“ If the equalization o f the surplus-value into average profit
meets with obstacles in the various spheres o f production in the
shape o f artificial or natural monopolies, particularly o f monopoly
in land, so that a monopoly price would be possible, which would
rise above the price o f production and above the value o f the com­
modities affected by such a monopoly, still the limits imposed by
the value o f commodities would not be abolished thereby. The
monopoly price o f certain commodities would merely transfer
a portion o f die profit o f the other producers o f commodities to
the commodities with a monopoly price. A local disturbance in the
distribution o f the surplus-value among the various spheres o f
production would take place indirectly, but they would leave the
boundaries o f the surplus-value itself unaltered. If a commodity
with a monopoly price should enter into the necessary consumption
o f the labourer, it would increase the wages and thereby reduce
the surplus-value, if the labourer would receive the value o f his
labour-power, the same as before. But such a commodity might
also depress wages below the value o f labour-power, o f course
only to the extent that wages would be higher than the physical
minimum o f subsistence. In this case the monopoly price would be
paid by a deduction from the real wages (that is, from the quantity
o f use-values received by the labourer for the same quantity o f
labour) and from the profit o f the other capitalists. The limits,
within which the monopoly price would affect the normal regula­
tion o f the prices o f commodities, would be accurately fixed and
could be closely calculated.” 1

The question arises, however, o f whether this type o f approach is

useful in a world in which “ artificial or natural monopolies” have
become far more widespread and powerful than they were in Marx’s
1 Capital, VoL m , pp. 1,003-4,
286 STU D IES IN THE L A B O U R T H E O R Y OF V A L U E

day, and in which the possession o f monopoly power is becoming

increasingly associated with the use o f w hat we m igh t rail “ extra-*
economic” methods o f maintaining and enlarging profits.1 In such a
world, it does not seem to me to be reasonable to assume any longer
that the sole source o f profit is the surplus labour o f the workmen
emplbyed by the capitalist. For example, there are now many cases
in which a part o f the excess profit received by certain monopoly
capitalists should properly be regarded as something like the old
“ profit upon alienation” characteristic o f the Mercantilist period.2
In such a world, “ the limits imposed by the value of commodities”
do indeed appear to be “ abolished” , and under such conditions
the type o f approach adopted by Marx in the passage just quoted is
not capable o f giving anything much more than a purely formal
answer to the problem o f monopoly price. If total profits diverge
from total surplus value, then it can no longer really be said that the
limits within which deviations o f actual prices from prices of produc­
tion may occur under monopoly are determined in accordance with
the Volume I analysis. This is the setting within which the problem
o f the reapplication o f the Marxian theory o f value to present-day
conditions must be considered.
One must be careful, however, not to exaggerate the extent to
which the coming o f monopoly capitalism has invalidated the tradi­
tional analyses based on the assumption o f free competition. Monopoly
does not mean the end o f competition, and may even at times (e.g.,
during periods o f price war) mean an intensification o f competition.
And even when actual competition is slight, the fear o f potential
competition may in many cases induce a monopolist to keep his
price at a level which affords him not much more than the “ normal”
or “ average” rate o f profit. These are points which have recently
been emphasised by a number o f commentators on the so-called
“ theory o f monopolisitic competition” which was developed in the
early ’thirties. Mr. Guillebaud, for example, has argued that “ except
in those relatively few cases where there is a high degree of restriction
o f entry and demand is very inelastic, the notion o f normal value
in Marshall’s sense. . . has a large measure o f applicability” .3 Such con-

2 C f. ibid., pp. 155-6.

3 “ M arshall’s Principles o f Econom ics in the L igh t o f C ontem porary Econom ic
T h o u gh t” , in Economica, M a y 1952, at p. 122. C f. p. 118. M arshall’s concept o f “ norm al
value” w as in essence the same as the Classical concept o f “ natural price” , although
his analysis o f the forces lyin g behind and determ ining this price was o f course very
different fro m the Classical analysis.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 287

siderations certainly suggest that a theory o f monopoly price must be

o f competitive price. But naturally they do not exempt us from the

obligation to work out such a theory.
It should be clear from what I have said above that Marx’s theory
o f value cannot be mechanically extended to the new historical circum­
stances. Marx’s theory was developed in the context o f a given stage
in the development o f capitalism and a given set o f problems, and
the essence o f what he said has to be disentangled from this context
before it can be reapplied to present-day conditions. Nor can his
theory be properly reapplied without a much more careful study
o f contemporary exchange phenomena in capitalist countries than
Marxists have yet engaged in. It is not my purpose in this concluding
section to undertake any such study, but rather to outline very
sketchily a new conceptual framework within which research into
the operation o f the law o f value in different historical systems,
including monopoly capitalism, might profitably proceed.
What Marx was above all concerned to show in his discussion
o f the value problem was that relations o f exchange were ultimately
determined by relations o f production— using the latter expression here
to include not only the basic relation between men as producers o f
commodities which persists throughout the whole period o f commod­
ity production, but also the specific set o f relations o f subordination
or co-operation within which commodity production is carried on
at each particular stage o f its development. And the particular form
which Marx’s demonstration o f this proposition assumed was largely
determined, as we have seen, by the aim which he had in view when
writing Capital. His main object, it will be remembered, was to
enquire into the modifications which took place in the general laws
o f commodity production and exchange when the capitalist system
o f commodity production replaced the earlier systems. In this enquiry,
Marx abstracted from the differences between various forms o f
pre-capitalist commodity production, and assumed that capitalism
impinged upon a system o f “ simple” commodity production in which
the normal exchange was one o f “ value” for “ value” . Thus the task
o f showing how relations o f exchange were ultimately determined
by relations o f production presented itself to Marx as tbe task o f
showing how the production relations specific to capitalist com­
modity production modified the influence which the basic relation
between men as producers o f commodities could be assumed to
288 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

have exerted upon exchange ratios under “ simple” commodity

production.
N ow if we wish to demonstrate that relations o f exchange are
ultimately determined by relations o f production at any given stage
in the development o f commodity production, we must o f course
show that the actual prices at which commodities produced under
conditions typical o f that stage tend to sell are ultimately determined
by the prevailing relations o f production. But the labour theory o f
value as Marx developed it afforded an explanation o f actual prices
only in so far as these were equal to supply prices.* In the particular
context in which Marx considered the problem, however, this did not
raise any special difficulty, since in the case o f each o f the two systems
o f commodity production with which he was primarily concerned
the deviations o f actual prices from supply prices could be regarded as
negligible. Under capitalist commodity production— at least in its
competitive stage, in which Marx was mainly interested— actual
exchange ratios do in fact tend automatically towards equality with
ratios o f supply prices. And under “ simple” commodity production
as Marx defined it exchange ratios could at least be legitimately
assumed to be equal to ratios o f supply prices. In this context, then,
in order to show that relations o f exchange were ultimately determined
by relations o f production, it was quite sufficient for Marx to show
(a) that under “ simple” commodity production ratios o f supply
prices were directly determined by embodied labour ratios, and (b)
that under capitalist commodity production ratios of supply prices
were indirectly determined by embodied labour ratios. The main
subject o f Marx’s enquiry was the manner in which capitalist relations
o f production caused “ prices o f production” to deviate from “ values”
— i.e., the manner in which they caused the supply prices characteristic
of capitalist commodity production to deviate from the supply
prices characteristic o f “ simple” commodity production. The question
o f the causes o f deviations o f actual prices from supply prices could quite
properly be abstracted from.
But if we change the perspective from which we look at the prob­
lem, and begin to concern ourselves with examining and comparing
the
of historical situations than that which Marx considered, it becomes
clear that our approach must to some extent be different from his.
Suppose, for example, that we wish to compare the way in which
1 Cf. above, pp. 199-200.
 R E A P P L I C A T I O N OF THE L A B O U R T H E O R Y 289

the law o f value operated under slavery or feudalism with the way

again, that we wish to compare the way in which it operated

under competitive capitalism with the way in which it operates
today under monopoly capitalism. In such an enquiry, evidently,
the question o f the causes o f deviations o f actual prices from supply
prices would assume much more importance than it did in the case
of Marx’s enquiry. The task o f showing that relations o f exchange
are ultimately determined by relations o f production could not
be carried out in quite the same way as Marx carried it out.
It would still be possible, however, I believe— and in fact essential—
to begin with Marx’s concept o f “ value” as embodied labour, and to
regard the “ values” o f commodities as reflecting or expressing the
basic relation between men as producers o f commodities which
persists throughout the whole period o f commodity production.
In other words, it would still be necessary to begin by assuming that

“ the exchange, or sale, o f commodities at their value is the rational

way, the natural law o f their equilibrium. It must be the point
o f departure for the explanation o f deviations from it, not vice
versa the deviations the basis on which this law is explained.” 1

How, then, are these deviations from “ value” determined? There

are two useful generalisations which it seems possible to make in
this connection. The first is that the typical2 deviations o f price from
“ value” at each stage in the development o f commodity production
are determined by the specific set o f relations o f subordination or
co-operation in production which characterises that stage. Exchange
relations at each stage, then, as manifested in the ratios in which
commodities typically tend to exchange for one another on the market,
are determined by the whole complex o f production relations which
characterise that stage— not only by the simple relation between
men as producers o f commodities which is common to all commodity-
producing societies and which is expressed in the “ values” o f these
commodities, but also by the particular set o f relations o f subordination
or co-operation in production which is specific to the stage under
consideration and which determines the nature and order o f magnitude
1 Capital, V o l. Ill, p. 221.
2 1 use the w o rd “ typical** here prim arily in order to exclude from consideration those
accidental deviations o f price fro m value w hich are due to tem porary discrepancies
betw een supply and demand. Such discrepancies m ay o f course cause deviations o f price
fro m value in any form o f com m odity-producing society.
290 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

o f the typical deviations from these “ values” .1 The second generalisa­

tion is that the relations o f subordination or co-operation in production
specific to the stage under consideration may cause two different
types o f deviation o f prices from “ values” . In the first place, they
may cause a deviation o f supply prices from “ values” ; and in the
second place, they may cause a deviation o f actual prices from supply
prices.
The nature o f this conceptual framework may become a little
clearer if I give a brief— and necessarily somewhat schematic— outline
o f the way in which it might be used as a guide to the concrete in­
vestigation o f exchange relations in the different stages o f commodity
production. W e begin, as I have suggested, with the Marxian concept
o f the value o f a commodity as the quantity o f socially-necessary
labour embodied in it, and we then proceed to enquire into the nature
o f the typical deviations o f prices from values at each stage, explaining
these deviations in terms o f the particular set o f relations o f subordi­
nation or co-operation in production specific to that stage.
So far as pre-capitalist societies are concerned, we assume, as Marx
did, that die supply prices o f commodities (though not necessarily
the actual prices) are more or less direcdy proportionate to values
throughout the whole pre-capitalist period. W e then examine the
manner in which the particular set o f relations o f subordination or
co-operation in production specific to each stage o f pre-capitalist
development influences the typical deviations o f actual prices from
supply prices (i.e., from values) at diat stage.2
1 These tw o types o f production relation are o f course interconnected, the second
being in fact the form in w h ich the first appears at an y g iven stage, b u t fo r the purpose
o f tracing out “ h o w the law o f value operates*’ in different historical stages it seems
advisable to distinguish betw een their effects in the m anner indicated in the text.
2 It is interesting to note that A d am Sm ith exam ined certain deviations o f price from
value caused b y the existence o f gu ild regulations in alm ost precisely the m anner w h ich I
am suggesting. T h e fo llo w in g passages seem to be w o rth quotin g in this connection:
(T h e italics are m ine.)
“ T h e governm ent o f tow ns corporate w as altogether in the hands o f traders and arti­
ficers; and it w as the manifest interest o f every particular class o f them , to prevent the
m arket from b ein g over-stocked, as th ey com m on ly express it, w ith their o w n particular
species o f industry; w h ich is in reality to keep it alw ays understocked. Each class was
eager to establish regulations proper for this purpose, and, provided it was allow ed to do
so, was w illin g to consent that e very other class should do the same. In consequence
o f such regulations, indeed, each class w as obliged to b u y the goods they had occasion
fo r from every oth er w ithin the to w n , som ew hat dearer than th ey otherwise m ight have
done. B u t in recom pence, they w ere enabled to sell their o w n ju st as m uch dearer; so
that so far it w as as broad as lo n g, as they say; and in the dealings o f the different classes
w ith in the to w n w ith one another, none o f them w ere losers b y these regulations. B u t
in their dealings w ith the country th ey w ere all great gainers; and in these latter dealings
consists the w h o le trade w hich supports and enriches every tow n .
“ E very to w n draw s its w h o le subsistence, and all the materials o f its industry, from
 R E A P P L I C A T I O N OP TH E L A B O U R T H E O R Y 291

So far as capitalism is concerned, we assume that the really crucial

»-capitalist to capitalist forms o f
society are (<2) the conversion o f the great majority o f products,
including labour power, into commodities— i.e., the rise to almost
complete dominance over social production o f that basic relation
between men as producers o f commodities which was present to
some extent in all preceding forms o f society but which had never
hitherto succeeded in dominating more than a relatively small part
o f production; and (b) as a result of the conversion o f labour power
into a commodity and the extension o f competition, the historical
transformation o f the pre-capitalist type o f supply price, which was
directly determined by value, into a new type o f supply price which is
indirectly determined by value. The main effect upon exchange relations
o f the new relations o f production specific to capitalism, as Marx
demonstrated, is to cause supply prices to deviate from values, in a
quantitatively determinate way. But the new relations o f production
also have an important effect, at certain stages o f capitalist develop­
ment, in causing actual prices to deviate from supply prices, and this
effect must be specifically examined. In this connection, it is convenient
to consider capitalism as developing through three more or less
consecutive stages:
(a) The Transitional Stage. In this stage, when capitalism is just
beginning to transform production, the new relations o f production
bring about deviations o f prices from values o f both the types distin­
guished above. On the one hand, they set forces to work which begin
to transform values into “ prices o f production” — i.e., to cause supply

the country. It pays for these chiefly in tw o w ays: first, b y sending back to the country
a part o f those materials w ro u g h t up and m anufactured; in w h ich case their price is
augm ented b y the w ages o f the w o rk m en , and the profits o f their masters or im m ediate
em ployers: secondly, b y sending to it a part b oth o f the rude and manufactured produce,
either o f other countries, or o f distant parts o f the same country, im ported into the to w n ;
in w h ich case too the original price o f these goods is augm ented b y the wages o f the
carriers or sailors, and b y the profits o f the merchants w h o em p loy them. In w hat is gained
upon the first o f these tw o branches o f com m erce, consists the advantage w hich the
to w n makes b y its manufactures; in w h at is gained upon the second, the advantage o f
its inland and foreign trade. T h e w ages o f the w orkm en , and the profits o f their different
em ployers, m ake up the w h o le o f w hat is gained upon both. W h atever regulations,
therefore, tend to increase those w ages and profits b eyon d w hat they otherwise w o u ld be,
tend to enable the
quantity o f the labour o f the country. T h e y give the traders and artificers in the to w n an
advantage over the landlords, farmers, and labourers in the country, and break down that
natural equality which would otherwise take place in the commerce which is carried on between
them. T h e w h o le annual produce o f the labour o f the society is annually divided betw een
these tw o different sets o f people. B y means o f these regulations a greater share o f it is
given to the inhabitants o f the to w n than w o u ld otherwise fall to th em ; and a less to
those o f the coun try” (Wealth o f Nations, V o l. I, pp. 126-7).
292 STU D IE S IN THE L A B O U R T H E O R Y OF V ALU E

prices to deviate from values; and on the other hand, they cause

o f various forms o f monopoly, etc., in this early stage o f development,

the latter effect is possibly more important at this stage than at any
other.1
(b) The Competitive Stage. In this stage— the one which Marx was
primarily concerned to analyse— the deviations o f prices from values,
broadly speaking, are almost exclusively o f the first type distinguished
above. The effect o f the relations o f production specific to this stage
is spent, as it were, in making supply prices deviate (in a quantitatively
determinate manner) from values, and they have comparatively little
effect in making market prices deviate from supply prices.
(c) The Monopoly Stage. In this stage, the relations o f production
once again take a hand, as they did in the earlier transitional stage, in
causing prices to deviate from supply prices. They make it possible for
the monopolist to restrict the total supply o f his commodity and thus
to raise its price above the competitive level, in the manner with which
we are nowadays made familiar in every economics textbook. But the
relations o f production may also have other effects which are rather
more difficult to generalise about and which have so far attracted little
attention from the writers o f textbooks. Most notably, they make it
possible for certain groups o f monopoly capitalists to tap sources o f
profit other than the “ poor* o f surplus value created by wage-labour—
in other words, to employ what would formerly have been looked
upon as “ abnormal” or “ extra-economic” methods o f profit-making.*
If, as seems probable, the use o f such methods normally results in a rise
in the rate o f profit which accrues to the groups o f capitalists concerned,
the latter will come to regard the higher rate o f profit as the norm and
will resist any reduction in it by all the means, both old and new, which
are at their disposal. If one accepted the view that the concept o f supply
price was still applicable in such cases, one could then say that the
1 Thus B o h m -B aw erk 's suggestion (op. tit., p. 49) that i f M a rx ’s analysis w ere correct
4'there must be traces o f the actual fact that before the equalization o f rates o f profit the
branches o f production w ith the relatively greater am ounts o f constant capital have
w o n and do w in the smallest rates o f profit, w hile those branches w ith the smaller amounts
o f constant capital w in the largest rates o f profit” , cannot b e accepted. M a rx ’s analysis
w as concerned o n ly w ith the broad historical transform ation o f one typ e o f supply
price into another, and the im portance o f deviations o f actbal prices from supply prices
during the transitional period is such that it is extrem ely u n lik ely that evidence o f die typ e
asked for b y B o h m -B a w erk could in fact be found. V
2 This seems to m e to be the rationale o f the useful but rather confusing distinction made
b y Stalin (EP, pp. 42 ff.) betw een "average” and "m ax im u m ” prpfits. T h e w o rd “ m axi­
m um ” is perhaps ill-chosen, since there is obviously an im portant sense in w h ich all
capitalists, w hether monopolists or otherwise, seek "m a x im u m ” /profits.
 REAPPLICATION OF TH B L A B O U R T H E O R Y 293

relations o f production peculiar to the monopoly stage resulted in the

not only from surplus value but also from certain other sources. Or,
alternatively, one could simply consider these new phenomena in
terms o f the manner in which actual prices deviated from the supply
prices peculiar to competitive capitalism.1
So far as socialism is concerned, the groundwork for the analysis
o f exchange relations has been laid by the Soviet work discussed in
the second section o f this chapter. Under socialism in a country like
the U.S.S.R., where a semi-private agricultural sector continues to
exist alongside the state sector, commodity production (and therefore
the law o f value) will also continue to exist, although in a relatively
restricted sphere. In a socialist society o f this sort, the supply prices
o f agricultural products can reasonably be assumed to be proportionate
to values. Agricultural producers in such a society will usually tend
to think o f their net receipts as a reward for their labour rather than
as a profit on their “ capital” ,2 and will tend to shift over to another
line o f production if the one in which they are at present engaged
does not appear to offer a return proportionate to the quantity o f that
labour expended. Thus at least so far as agricultural products are
concerned, the introduction o f socialist relations o f production brings
about a transformation of the supply prices peculiar to the previous
capitalist stage into supply prices of a similar character to those which
prevailed in pre-capitalist societies. So far as manufactured goods are
concerned, their situation is somewhat anomalous, since although
they are technically “ commodities” the concept o f a supply price is
not really applicable to them, and I cannot see that there is much
point in attempting to analyse their prices in terms o f our conceptual
apparatus. This is not o f course to say that when manufactured goods
come into the picture relations o f production no longer determine

1 For an interesting discussion o f som e o f the im portant issues in volved here, see the
article b y R . B ellam y in The Marxist Quarterly o f January 1956. Stalin (EP, pp. 43-4)
seems to suggest that m o n o p o ly capitalism needs a higher rate o f profit than com petitive
capitalism in order to m eet the requirements o f “ m ore or less regular extended reproduc­
tion” . W h a t Stalin had in m ind here is b y no means clearly stated, and the question
ob viou sly needs further discussion. W h a t he may have been w anting to emphasise is the
fact that under m o d em conditions, in w h ich n ew investm ent projects often require the
tyin g-up o f m uch larger quantities o f capital fo r a m uch longer period o f tim e than was
form erly the case, the capitalists concerned are not go in g to run the risk o f losing their
capital (w hich must alw ays exist in this uncertain w orld) unless th ey can reasonably
expect to receive a relatively h igh rate o f profit on their investment.
2 M ost o f the im portant items o f capital equipm ent required in Soviet agriculture
are in fact ow n ed b y the State and hired out to the collective farms b y the M achine and
T ractor Stations.
2Q4 S T U D I E S IN TH E L A B O U R T H E O R Y OF V A L U E

relations o f exchange: it is simply to say that the task o f showing that

termine r<
usefully be carried out by analysing the nature and causes o f “ typical
deviations o f prices from values” .
When we consider the picture o f the development of exchange
relations just outlined, two questions immediately arise. Even assuming
that the deviations o f price from value typical o f a given stage o f
development can actually be said to be determined by the relations
o f production specific to that stage, it may first be asked, what grounds
have we for beginning our research with the assumption that “ the
exchange, or sale, of commodities at their value is the rational way,
the natural law o f their equilibrium” ? The majority o f commodities
do not in fact tend to sell at these “ values” in capitalist society, or in
socialist society, and it seems rather unlikely that they very often
tended to do so in pre-capitalist societies. What right have we to
expect, then, that a consideration o f the value problem in terms
o f the determination o f deviations from these apparently quite hypo­
thetical “ values” will lead to useful results? And further, second, if
we adopt an approach o f this type are we not in effect giving up all
hope of obtaining any quantitatively determinate laws o f price?
So far as the first question is concerned, the essential point is that
for the major part o f the period o f commodity production as a whole,
supply prices have in actual fact been directly or indirectly determined
by “ values” in Marx’s sense. And these supply prices are by no means
hypothetical: for most o f the period o f commodity production they
have been firmly rooted in the consciousness o f the producers them­
selves. Even in primitive societies one can see the beginnings o f the
idea that the exchange o f commodities “ at their values” in the Marxian
sense is “ the rational way, the natural law o f their equilibrium” .
In quite a few cases, apparently, the prices asked and received for
commodities in primitive markets are based on production costs.1
The introduction o f money, which “ materially simplifies the determin­
ation o f equivalence” , 2 and the gradual extension o f commodity
production and exchange within the community, contribute sub­
stantially to the growth o f this idea in the consciousness of the pro-
ducers. After a while, the producers o f commodities come quite
naturally to think o f the actual price they happen to receive for their
commodity in terms of the extent to which this price deviates from
1 C f. M . J. Herskovits, Economic Anthropology (N e w Y o r k , 1952), pp. 220-1 and 234-5.
C f. also Paul Einzig, Primitive Money (London, 1949), B o o k HI, Part 3, chapter 21.
2 Herskovits, op. cit., p. 2 11.
 R E A P P L I C A T I O N OF TH E L A B O U R T H E O R Y 295
the supply price— i.e., roughly, from the value o f the commodity
in Marx’s sense. The value o f the commodity, although the market
price may not often “ tend” to conform to it at any particular stage
o f development owing to the existence o f certain specific forms
o f monopoly, state interference, etc., characteristic o f that stage,
is regarded by the producers themselves as a sort o f basis from
which the deviations caused by these factors may legitimately be
measured.
The idea that the exchange o f commodities “ at their values” re­
presents the “ natural” way o f exchanging them was o f course often
expressed in ethical terms. In other words, it often took the form
o f an idea concerning the manner in which exchanges ought to be
conducted if justice was to be done. But ideas as to what constitutes
a “ fair” exchange come into men’s minds in the first instance from
earth and not from heaven. When the small capitalist who is faced with
the competition o f a powerful monopolist says that he has a right to
receive a “ fair” profit on his capital, or when the peasant who ex­
changes his produce for that o f a guildsman on disadvantageous
terms says that he has a right to receive a “ fair” return for his labour,
the standard o f “ fairness” erected by each o f the complainants actually
has reference to the way in which exchanges would in fa đ he conducted
in the real world if the particular form o f monopoly to which he is
objecting did not exist. In pre-capitalist times, there must always have
been some commodities which were exchanged more or less at their
values, and some times and localities in which deviations o f price
from value were relatively small, so that the “ natural” method o f
exchanging commodities could actually be seen in operation. For
obvious reasons, this “ natural” method was regarded as the only
really “ fair” one. Thus the persistence o f the concept o f a “just price” 1
throughout the major part o f the pre-capitalist period seems to me to
1 For a short history o f this concept see R u d o lf Kaulla, Theory o f the Just Price (London,
1940), chapter 1. K aulla’s interpretation (pp. i s 1-2) o f the celebrated passage in A ristotle’s
Nichomachean Ethics dealing w ith reciprocity in exchange (B o o k V , 5) does not seem to m e
to be v e ry convincing. W h a t Aristotle was in fact saying, I think, w as sim ply that the
exchange o f com m odities at their “ values” , w eigh ted according to differences in skill
and status, was the “ natural” (and “just” ) m ethod o f exchanging them . I f a builder and a
shoemaker are exchanging their com m odities, A ristotle argues, “ there is nothing to pre­

equated” . A n d “ there w i l l . . . be reciprocity w h en the terms have been equated so that

as farm er is to shoemaker, the am ount o f the shoem aker’s w o rk is to that o f the farm er’s
w o r k fo r w h ich it exchanges” ( The Works o f Aristotle, ed. W . D . R oss, O x fo rd , 1925,
V o l. IX , 1133d), W . D . R oss interprets the passage m uch as I do. I f A ’s “ w o rth ” is n
times that o f B , he says, then a “ fair” exchange w ill take place “ i f A gives w hat it takes
him an hour to m ake, in exchange fo r w h at it takes B n hours to m ake.”
296 S T U D I E S IN T H E L A B O U R T H E O R Y OF V A L U E

afford evidence in favour o f the objective (and not merely hypo-

thetical) existence o f supply prices proportionate to values during
that period.
Thus although Adam Smith’s picture o f an “ early and rude state
o f society” in which deer and beaver hunters exchanged their products
strictly in accordance with embodied labour ratios was indeed a
“ Robinsonade” ,1 it did at least contain this element o f truth— that
in pre-capitalist societies the supply price o f a commodity, which had
an objective existence even though the actual prices o f the majority
o f commodities usually deviated from their supply prices for one
reason or another, could be regarded as directly determined by the
value of the commodity. And we have seen that in socialist societies
like that which exists in the U.S.S.R. the supply prices o f the bulk
o f agricultural produce (whether its producers be individual peasants or
collective farms) can plausibly be said to be determined in a similar way.
In between the pre-capitalist and socialist stages, there lies the relatively
short capitalist stage, in which supply prices differ in character from
those prevalent in pre-capitalist and socialist society. But at least for the
major part o f the capitalist period, supply prices, although not directly
proportionate to values, can be shown to be ultimately determined by
them. All in all, then, it surely seems reasonable to begin one’s re­
searches into the problem o f the determination o f prices by defining
value in terms o f embodied labour, and then to proceed to consider
actual prices in terms o f their deviations (if any) from these “ values” .
If we do not adopt this approach, it seems to me that we shall be
reduced either to a sort o f ad hoc empiricism or to a superficial explan­
ation in terms o f “ supply and demand” , thereby cutting ourselves off
completely from any possibility o f discovering the laws which govern
the development o f exchange relations.
But would the adoption o f the approach I have recommended
in fact mean giving up all hope o f obtaining any quantitatively determin­
ate laws o f price? Dr. Schlesinger has suggested (with reference to the
monopoly capitalist stage) that once we take the interweaving o f the
“ economic” and “ political” aspects for granted, “ the predictability
o f economic events . . . is reduced to that o f political ones” , so that

surely to prejudge the results o f an investigation which has not yet

taken place. It is true that at the present level o f our knowledge

1 M arx, Critique o f Political Economy, p. 266.

2 M arx: His Time and Ours, p. 149.
 R E A P P L IC A T IO N OF THE L A B O U R T H E O R Y 297

we are not able to make very many useful generalisations concerning

the extent (as distinct from the nature and causes) o f the typical
deviations o f prices from values in respect o f any stage in the develop­
ment o f commodity production other than the competitive capitalist
stage. But this is not at all to say that there are no more such general­
isations to be made. For example, there does not seem to me to be any
a priori reason why present-day Marxists should not eventually be
able to discover laws o f monopoly price which are “ quantitative”
in the same sense as Marx’s laws o f competitive price were “ quanti­
tative” .1
In addition, it should be noted in this connection that the approach
which I am suggesting— the explanation o f typical deviations o f price
from value in terms o f the specific set o f relations o f production
characteristic o f the particular stage under consideration— would
not have the effect o f making certain prices indeterminate where they
were determinate before. All that the labour theory as Marx developed
it can do is to make the supply prices characteristic o f pre-capitalist
and capitalist society determinate. Where actual prices deviate from
these supply prices it cannot by itself provide us with any
generalisations which would serve as a basis for exact quantitative
predictions concerning the extent o f these deviations. The point is
that the suggested approach has been designed precisely in order to
help make the deviations more predictable than they are now. If
there are in fact any new “ quantitative” laws o f price to be found,
such an approach should assist to discover them.
Finally, let us suppose that it turns out that such new generalisations
as the approach enables us to discover are not strictly “ quantitative”
in character. This would not at all imply that “ economics can be no
more an exact science than politics” . For— leaving aside here the
question o f whether politics cannot in fact be made a far more exact
science than it is at present— the quantitative indeterminacy, broadly
speaking, would affect only the deviations from the supply prices
and not the supply prices themselves; and the predictions which the
new generalisations would enable us to make concerning these devi­
ations would surely be at least as “ exact” as those which the science
o f politics at present enables us to make. A Marxian theory o f price

1 It is already possible, on the basis o f the M arxian approach, to m ake certain general­
isations o f the “ m ore o r less” typ e concerning the deviations o f m onop oly prices from
siipply prices, and concerning the deviations o f prices under socialism from values.
C f. Sw eezy, Theory o f Capitalist Development, chapter 15, and M . H . D ob b, Political
Economy and Capitalism, pp. 321 ff.
298 STUDIES IN THE L A B O U R T H E O R Y OF V A L U E

worked out along the lines indicated above might indeed appear to be
«•
inexact»J if
./• . I l l
it were placed »1
alongside, A
say, the general1 eqnilihnnm
>f 1 •

theory o f price. But the apparent “ exactness” o f the latter theory

has been purchased only at the expense o f realism and relevance:
the equations o f which the theory consists have very little o f the real
world o f men in them. To consider the laws o f commodity exchange
in terms o f the relations o f production, instead o f in abstraction from
them, might mean some sacrifice o f elegance and precision. But the
gain in real scientific understanding o f the society in which we live
would far outweigh this cost. And unless economics in fact takes
this course— unless it becomes once more political economy— there is
indeed litde hope for it.
 APPENDIX
KARL M ARX ’S ECON OM IC METHOD

I
Most o f the great “ heroic” economic models o f a dynamic character
which have been put forward in the course o f the history o f economic
thought— those of Quesnay, Smith, Ricardo and Marx, for example—
possess certain important characteristics in common. The model-builder
usually begins, on the basis o f a preliminary examination of the facts,
by adopting what Schumpeter has called a “ vision” of the economic
process. In other words, he begins by orienting himself towards some
key factor or factors which he regards as being of vital causal significance
so far as the structure and development of the economic system as a
whole are concerned. With this vision uppermost in his mind, he then
proceeds to a more thorough examination o f the economic facts both
o f the present situation and o f the past situations which have led up to
it, and arranges these facts in order on what might be called a scale of
relevance. Their position on this scale will depend upon such factors as
the particular vision which the model-builder has adopted, his political
and social sympathies, and the extent to which the facts display uni­
formities and regularities which promise to be capable of causal
analysis in terms of the postulation o f “ laws” and “ tendencies” .
Taking the facts which he has placed at the top o f the scale as his
foundation, the model-builder proceeds to develop certain concepts,
categories and methods of classification which he believes will help him
to provide a generalised explanation o f the structure and development
o f the economy. In this part o f his work he has necessarily to rely to
some extent on concept-material inherited from the past, but he also
tries to work out new analytical devices of his own. The particular
analytical devices which he employs— his tools and techniques, as it
were— are thus by no means arbitrarily chosen. To quite a large extent
they are dependent upon the nature of his vision, the nature o f the
primary facts which they are to be used to explain, and the nature o f
the general method o f analysis which he decides to adopt. The degree of
their dependence upon these factors, however, varies from one device to
another. Whereas some of the devices may be useless or even harmful
when the facts to be analysed and the orientation, aim and general
method o f analysis of the model-builder are radically different, others
I

300 S T U D IE S IN TH E L A B O U R T H E O R Y OF V A L U E

may have a greater degree o f general applicability. Some may well

prove useful when applied to other forms o f market economy, and some
may even be “ universal” in the sense in which, say, statistical techniques
St • I ff
are universal .
With the aid o f these devices, then, the model-builder proceeds to
the theoretical analysis of the particular economic facts which he has
placed at the top of his scale of relevance. He endeavours to give a
causal explanation o f the uniformities and regularities which he has
observed in these facts; he affords these explanations the status o f
“ laws” or “ tendencies” ; and he gathers together these laws and ten­
dencies into his first theoretical approximation. He then takes into
account the facts next in order on the scale o f relevance, from which
he has hitherto abstracted, enquires into the extent to which their
introduction into the picture requires a modification of the laws and
tendencies o f the first approximation, and thus arrives at his second
approximation. He may well then proceed to a third, fourth, etc.,
approximation, progressively taking into account facts which he has
placed lower and lower on the scale o f relevance; but obviously there
must come a time when it is not worth while to proceed any further
down the scale. At the point where the basic laws and tendencies begin
to be submerged beneath the exceptions and qualifications, he usually
stops. The facts further down in the scale o f relevance are simply
abstracted from.
The final task is to use the model for the purpose o f making concrete
predictions— a task which is carried out largely by extrapolating the
laws and tendencies into the future, on the express or implied assump­
tion that the economic facts will continue to maintain their assumed
position on the scale of relevance. The model which finally emerges is
therefore compounded o f elements not only o f the past and present
but also o f the future.
This description o f the model-building process is necessarily some­
what schematic, and I certainly do not mean to imply that all the
great model-builders consciously adopted this intricate methodological
approach. In essence, however, this was the method which most of
them did in actual fact adopt, whether or not they were fully aware o f
what they were doing. It does help, I think, to have this general scheme
in mind when we are analysing the economic work o f a thinker like
Marx— particularly if we are analysing it with a view to discovering
whether and in what sense it is still relevant today.

II
The application o f this general scheme to Marx's model is easier than
in the case o f most of the other great models, because Marx was more
 KARL M A R X ’ S EC O N O M IC METHOD 3 0I

conscious o f what he was doing than most of his predecessors in the

field. The key causal factor towards which Marx began by orienting
himself was the socio-economic production relation between the class
o f capital-owners and the class o f wage-eamers. This relation, he
believed, gave birth to the main contemporary forms o f unearned
income and to the possibility of the large-scale accumulation of capital;
and this accumulation led in turn to rapid technological progress,
which interacted with the capital-labour relation to determine the main
features o f the structure of capitalism and the main lines of the develop­
ment o f the system of a whole.
This was in effect Marx’s “ vision” of the capitalist economic process.
With this vision uppermost in his mind, he made a thorough examina­
tion of the economic facts both of the past and the present. The most
relevant fact appeared to him to be the existence in all forms of class
society o f a mass of unearned income, which in capitalist society mainly
took the form of net profit on capital, rent of land, and interest.
Associated with this were certain other important facts or tendencies
o f a historical character which Marx’s study of capitalist development
in the past revealed to him— notably the progressive decline in the rate
of profit; the increasing subordination of formerly independent workers
to the capitalist form of organisation; the increasing economic in­
stability of the system; the growth of mechanisation with its accom­
panying changes in the industrial structure; the emergence of various
Forms of monopoly; the growth of the “ reserve army of labour” ; and
the general deterioration in the condition o f the working class. It is
important to emphasise that these facts, by and large, were regarded by
Marx simply as the data of his problem. As anyone can see by glancing
at his Economic and Philosophic Manuscripts o f 1844, Marx had placed
these facts at the top o f his scale o f relevance long before he came to
work out the detailed tools and techniques required to analyse them.
The next stage— conceptually if not chronologically— was the
development o f Marx’sgeneral method o f analysis, which was intimately
associated with his vision o f the economic process. Three aspects o f
this general method are worthy o f note in the present connection.
In the first place, Marx had begun, as Lenin put it, “ by selecting
from all social relations the ‘production relations’, as being the basic
and prime relations that determine all other relations” .1 In Capital,
where he sets out to deal with “ one o f the economic formations o f
society— the system o f commodity production” , Marx’s analysis is
“ strictly confined to the relations o f production between the members
o f society: without ever resorting to factors other than relations of
production to explain the matter, Marx makes it possible to discern
how the commodity organisation o f social economy develops, how it
1 V . I. Lenin, Selected Works (London, 1939), V o l. II, p. 418.
302 S T U D IE S IN TH E L A B O U R T H E O R Y OF V A L U E

becomes transformed into capitalist economy, creating the antagonistic

. . . classes, the bourgeoisie and the proletariat, how it develops the
productivity o f social labour and how it thereby introduces an element
which comes into irreconcilable contradiction to the very foundations
of this capitalist organisation itself” .1 In the context o f the particular
range o f enquiry encompassed in Capital, it is evident that “ relations
o f production” must be taken to include not only the specific set of
relations o f subordination or co-operation within which commodity
production is carried out at each particular stage o f its historical
development (e.g., the capitalist stage), but also the broad basic relation
between men as producers o f commodities which persists throughout
the whole period o f commodity production.2
In the second place, within the framework of the methodological
approach just outlined and in close association with it, Marx developed
a highly idiosyncratic method o f enquiry— it might perhaps be called
the “ logical-historical” method— which was one o f the more interesting
and significant o f the fruits o f his early Hegelian studies. The descrip­
tion which Engels gave o f this method in a review o f Marx’s Critique o f
Political Economy in 1859 has not been bettered, and the following
extract can be reproduced without apology:

The criticism of economics... could... be exercised in two ways: histori­

cally or logically. Since in history, as in its literary reflection, development
as a whole proceeds from the most simple to the most complex relations,
the historical development of the literature of political economy provided a
natural guiding thread with which criticism could link up and the economic
categories as a whole would thereby appear in the same sequence as in the
logical development. This form apparently has the advantage of greater clear­
ness, since indeed it is the actual development that is followed, but as a matter
of fact it would thereby at most become more popular. History often proceeds
by jumps and zigzags and it would in this way have to be followed every­
where, whereby not only would much material of minor importance have
to be incorporated but there would be much interruption of the chain of
thought; furthermore, the history of economics could not be written without
that of bourgeois society and this would make the task endless, since all
preliminary work is lacking. The logical method of treatment was, therefore,
the only appropriate one. But this, as a matter of fact, is nothing else than
the historical method, only divested of its historical form and disturbing
fortuities. The chain of thought must begin with the same thing that this
1 V . I. Lenin, Selected Works, V o l. II, pp. 420-1. Lenin adds that M arx, “ w hile
‘explaining* the structure and developm ent o f the given form ation o f society ‘ex-
clusively* in terms o f relations o f production, . . . nevertheless everyw here and always

421).
w ent on to trace the superstructure corresponding to these relations o f production and
clothed the skeleton in flesh and b lood ” (ibid.t p.
2 “ C o m m o d ity production** in the M arxist sense means rough ly the production o f
goods for exchange on some sort o f m arket b y individual producers or groups o f pro­
ducers w h o carry on their activities m ore or less separately from one another.
 >
KARL MARX S E C O N O M IC M E T H O D 303
history begins with and its further course will be nothing but the mirror-
image of the historical course in abstract and theoretically consistent form,
a corrected mirror-image but corrected according to laws furnished by the
real course of history itself, in that each factor can be considered at its
ripest point of development, in its classic form.1
This then was another important aspect o f Marx’s general method o f
analysis. No doubt this “ logical-historical” approach was sometimes
carried to excess (for reasons which Marx himself partly explained in
his “ Afterword” to the second German edition o f Capital),2 but in his
hands it proved on the whole to be very fruitful. It was particularly
important, as will shortly be seen, in connection with the theory o f
value developed in Capital.
In the third place, and again closely associated with the two other
aspects just described, there was the important notion that if one wished
to analyse capitalism in terms o f relations o f production the best way
o f doing this was to imagine capitalism suddenly impinging upon a
sort o f generalised pre-capitalist society in which there were as yet no
separate capital-owning or land-owning classes. What one ought to
do, in other words, was to begin by postulating a society in which,
although commodity production and free competition were assumed
to reign more or less supreme, the labourers still owned the whole
produce o f their labour. Having investigated the simple laws which
would govern production, exchange and distribution in a society o f
this type, one ought then to imagine capitalism suddenly impinging
upon this society. What difference would this impingement make to
the economic laws which had operated before the change, and why
would it make this difference? If one could give adequate answers to
these questions, Marx believed, one would be well on the way to
revealing the real essence o f the capitalist mode o f production. In
adopting this kind o f approach, Marx was of course following— and
developing further— a long and respectable tradition which had been
established by Smith and Ricardo. Marx’s postulation o f an abstract
pre-capitalist society based on what he called “ simple” commodity
production was not essentially different in aim from Adam Smith’s
postulation o f an “ early and rude” society inhabited by deer and beaver
hunters. Neither in Marx’s case nor in that o f Smith was the postulated
pre-capitalist society intended to be an accurate representation of
historical reality in anything more than the very broadest sense. Nor
was it intended as a picture o f an ideal form o f society, a sort o f golden
age o f the past which the coming o f the wicked capitalists and land­
lords was destined rudely to destroy. It was clearly part of a quite
complex analytical device, and in its time a very powerful one. I am
1 Cf. above, pp. 148-9. 2 Capital, Vol. I, pp. 19-20.
304 S T U D I E S I N T H E L A B O U R T H E O R Y OF V A L U E
accustomed to tell my students that it was not a m yth , as some critics
maintain, but rather m yth odology.
This, then, was the nature of Marx’s g e n era l method of economic
analysis, in the context of which his other tools and techniques were
developed and employed. Some of these were inherited by Marx from
his predecessors—the concept of equilibrium, for example, and the
particular classification of social classes and class incomes which he
adopted. Others were newly developed, such as the important distinc­
tions between abstract and concrete labour, labour and labour-power,
and constant and variable capital. As his analysis proceeded, certain
other concepts, relations and techniques emerged—notably the concept
of surplus value, the distinction between relative and absolute surplus
value, the ratios representing the rate of surplus value, the rate of profit
and the organic composition of capital, and the techniques associated
with his famous reproduction schemes.
In so far as it is possible to distinguish m ethods and tools of analysis
from the results of analysis, then, these were some of the main methods
and tools which Marx employed to analyse the economic facts which
he had placed at the top of his scale of relevance. The uniformities and
regularities which he believed he could detect in these facts were
analysed in terms of the relations of production, with the aid of these
methods and tools; and causal explanations emerged which were
generalised in the form of tendencies and laws, modified in the second
and subsequent approximations, and eventually extrapolated into the
future in the form of more or less concrete predictions.

Ill
The most important field of application of Marx’s general economic
method was of course the theory o f value elaborated in Capital . Indeed,
Marx’s theory of value is perhaps best regarded as being in essence a
kind of generalised expression, or embodiment, of his economic
method. In his analysis of value, as Engels noted, Marx “proceeds from
the simple production of commodities as the historical premise, ulti­
mately to arrive from this basis [at] capital”. In other words, he begins
with the “simple” commodity, and then proceeds to analyse ^ “logi­
cally and historically secondary form”—the “capitalistically modified
commodity”.1 The first part of his analysis of value therefore consists
of a set of statements concerning the way in which relations of produc-
tion influence the prices of goods in that abstract pre-capitalist form of
society of which I have just spoken above. The second part of his
analysis consists of a further set of statements concerning the way in
which this basic causal connection between prices and relations of pro-
1 CapitaU Vol. Ill, p. 14.
 KARL M ARX’s E C O N O M I C M E T H O D 305
duction is modified when capitalist relations of production impinge
'simple” commodity production—Le,
when the “simple” commodity becomes “capitalistically modified”.
This process of capitalistic modification is conceived to take place in
two logically separate stages. In the first stage, it is assumed, capital
subordinates labour on the basis of the technical conditions in which
it finds it, and does not immediately change the mode of production
itself. In the second stage, it is assumed, the extension of capitalist
competition brings about a state of affairs in which profit becomes
proportional not to labour employed but to capital employed and in
which a more or less uniform rate of profit on capital comes to prevail.
Thus Marx’s theory of value can conveniently be considered under the
three headings of Pre-capitalist Society, Early Capitalism, and De­
veloped Capitalism.1 To each of these forms of society there may be
conceived to correspond certain basic economic categories and certain
basic logical problems. The task of the analysis of value as Marx
understood it was to solve these basic problems in terms of the relations
of production appropriate to the particular “historical” stage which
was under consideration.
In Volume I of Capital, then, Marx proceeds “from the first and
simplest relation that historically and in fact confronts us”2—the broad
socio-economic relation between men as producers of commodities.
In so far as economic life is based on the private production and
exchange of goods, men are related to one another in their capacity as
producers of goods intended for each other’s consumption: they work
for one another by embodying their separate labours in commodities
which are destined to be exchanged on some sort of market. Histori­
cally, this “commodity relation” reached its apogee under capitalism,
but it was also in existence to a greater or lesser extent in almost all
previous forms of society. If we want to penetrate to the essence of a
society in which the commodity relation has become “capitalistically
modified”, then, one possible method of procedure is to begin by
postulating an abstract pre-capitalist society in which the commodity
relation is assumed to be paramount but in which there are as yet no
separate classes of capital-owners and land-owners. Having analysed
the commodity relation as such in the context of this generalised pre­
capitalist society, one can then proceed to examine what happens when
capitalist relations of production impinge upon it.
1 A w o rd o f caution m ay be appropriate here, in order to forestall possible criticisms
in volvin g the fallacy o f misplaced concreteness. T h e three forms o f society mentioned
here do not necessarily represent actual historically identifiable form s: they are m erely
the “ historical” counterparts o f the three main stages in M a rx ’s logical analysis o f the
value problem. In M arx’s view , it w ill be remembered, the course o f logical analysis is a
corrected m irror-im age o f the actual historical course.
2 C f. above, p. 149.
306 STUDIES IN THE L A B O U R T H E O R Y OF VALUE
Marx’s logical starting-point in Capital, then, is the commodity rela­
tion as such, and his historical starting-point is an abstract pre-capitalist
society of the type just described. In such a society, great importance
clearly attaches to the fact that commodities acquire the capacity to
attract others in exchange— i.e., that they come to possess ex change
values, or prices. The basic logical problem to be solved here is simply
that o f the determination o f these prices. For Marx, no solution o f this
problem could be regarded as adequate which was not framed in terms
of the appropriate set o f relations o f production. And for Marx, too,
no solution could be regarded as adequate which did not possess as it
were two dimensions— a qualitative one and a quantitative one. The
qualitative aspect o f the solution was directed to the question: W hy
do commodities possess prices at all? The quantitative aspect was
directed to the question: W hy do commodities possess the particular
prices which they do? This distinction between the qualitative and
quantitative aspects o f Marx’s analysis o f value is of considerable
importance, if only because it crops up again in the second and third
stages o f his enquiry.
In the context of the postulated pre-capitalist society, the answers to
both the qualitative and the quantitative questions are fairly simple.
The quality o f exchange value is conferred upon commodities precisely
because they are commodities— i.e., because a commodity relation
exists between their producers. The price relations between commodi­
ties which manifest themselves in the sphere of exchange are essentially
reflections of the socio-economic relations between men as producers
o f commodities which exist in the sphere of production. And just as it
is the fact that men work for one another in this particular way which
is responsible for the existence of commodity prices, so in Marx’s view
it is the amount o f work which they do for one another which is
responsible for the relative levels of commodity prices. The amount of
labour laid out on each commodity, Marx argued, will determine (in
the postulated society) the amount of exchange value which each comes
to possess relatively to the others. In other words, in a society based on
simple commodity production the equilibrium prices o f commodities
will tend to be proportional to the quantities o f labour normally used
to produce them. This is a familar proposition which Marx of course
took over from Smith and Ricardo, and g iv e n the particular set o f
assumptions upon which it is based it is almost self-evidently true. It is
this proposition which is usually abstracted from Marx’s analysis and
labelled “ the labour theory of value” — a procedure which is of course
quite illegitimate and which has had most unfortunate consequences.
Having thus proclaimed right at the beginning the general way in
which he intends to unite economic history, sociology and economics
in a kind o f m enage a trois, Marx now proceeds to the second logical
 KARL M A R X ’ S E CO N O M IC METHOD 307

stage o f his analysis. The “ historical” counterpart o f this second stage

is a society based on commodity production which has just been taken
over by capitalists. The formerly “ independent” labourers now have
to share the produce of their labour with a new social class— the
owners of capital.1 But nothing else is at this stage assumed to happen:
in particular, it is supposed that capital subordinates labour on the
basis of the technical conditions in which it finds it, without immedi­
ately changing the mode o f production.2 It is also assumed that com­
modities for the time being continue to sell “ at their values” in the
Marxian sense— i.e., at equilibrium prices which are proportionate to
quantities o f embodied labour. In such a society, the crucial differentia
is the emergence of a new form o f class income, profit on capital, and
the basic logical problem as Marx conceived it was to explain the
origin and persistence o f this new form o f income under conditions in
which free competition was predominant and both the finished com­
modity and the labour which produced it were bought and sold on
the market at prices which reflected their Marxian “ values” . The
conditions of the problem were carefully posed by Marx in such a way
as to rule out explanations in terms of anything other than the relations
of production appropriate to the new stage.
Qualitatively speaking, the Marxian answer to the problem is obvi­
ous enough. The basic feature o f the new situation is that a new social
class has arisen and obtained a kind of class monopoly o f the factor o f
production capital, the other side o f this medal being that labour has
itself become a commodity which is bought and sold on the market like
any other commodity. The existence o f this class monopoly of capital
means that the capitalists are able to “ compel the working-class to do
more work than the narrow round of its own life-wants prescribes” .3
The produce o f this extra or surplus labour o f the workers constitutes
in effect the profit of the capitalists— or, as Marx calls it at this stage,
the surplus value. But once again Marx was not content with an
explanation couched solely in qualitative terms: he considered it
necessary to derive in addition a quantitative explanation from the basic
socio-economic relation between capitalists and wage-earners.4 The
“law o f value” is therefore applied by Marx to the commodity labour

1 A t this stage, the existence o f a separate class o f land-owners is abstracted from — a

fact w hich throws further light on M a rx ’s conception o f the relation between the logical
and the historical in analysis. T he land-labour relation was historically prior to the
capital-labour relation. B ut under capitalism it is the capital-labour relation w hich is
prim ary, and the land-labour relation w hich is secondary. Since the analysis as a w hole
is oriented towards capitalism, the logical analysis must in M a rx ’s v ie w proceed from
the capital-labour relation to the land-labour relation, and not vice versa.
2 C f. Capital, V o l. I, pp. 184 and 310. 3 Capital, V o l. I, p. 309.
4 O r, rather, from the broad relation between men as producers o f com m odities as
modified by the im pingem ent upon it o f the class relation betw een capitalists and w ag e-
carners.
30 8 stu d ies in th e l a b o u r t h e o r y of value

— or rather labour-power— itself, the value o f labour-power being in

effect def
for the labourers at subsistence level. The surplus value received by any
individual capitalist can then be regarded as determined and measured
by the difference between the number o f hours o f work which his
labourers perform and the number of hours o f other men’s work
which are embodied in the wage-goods which he is in effect obliged
to pay his labourers. This “law” , as Marx noted in Volume I, implies
that profits are proportional to quantities of labour employed rather
than to quantities o f capital employed, and thus “ clearly contradicts all
experience based on appearance” ;1 but the solution o f this “ apparent
contradiction” is reserved for a later logical-historical stage in the
analysis.
This later stage occurs in Volume III, where Marx deals with com­
modity and value relations which have become “ capitalistically
modified” in the fullest sense. His “ historical” starting-point here is a
fairly well developed capitalist system in which the extension o f com­
petition between capitalists has made profit proportional not to labour
employed but to capital employed, and in which a more or less uniform
rate o f profit on capital prevails. In this new situation, which Marx
speaks of as one in which “ surplus value has been transformed into
profit” , it is easy to see that the equilibrium prices at which com­
modities normally tend to sell must diverge appreciably from their
Volume I “ values” : clearly commodities can continue to sell at these
“ values” only so long as the profit constituent in the price remains
proportional to the quantity o f labour employed.2 Once commodities
come to sell not at their Volume I “ values” but at their Marshallian
“ costs o f production” (or “ prices o f production” , as Marx called them)
a new logical problem arises for solution— that o f the determination of
prices o f this new type. In particular, the question arises as to whether
these Volume III “ prices o f production” can be explained in terms of
the relations o f production postulated as determinants in Volume I
(suitably modified, of course, to reflect the transition to the new histori­
cal stage), or whether Adam Smith was correct in thinking that an
entirely new type o f explanation o f prices was necessary in the stage o f
developed capitalism.
Qualitatively speaking, Marx’s answer was that the “ capitalistically
modified” commodity relation was still o f primary importance in
d e te r m in in g prices e v e n in this final stagp; w h e n actual equilibrium
prices obviously diverged appreciably from Volume I “values” . In a
commodity-producing society o f the modem capitalist type, the labour-
1 Capital, V o l. I, p. 307.
2 G iven, o f course, that w hat M arx called the “ organic com position o f capital”
varies from industry to industry— w hich it docs in fact do under developed capitalism.
 KARL M A R X ’ S EC O N O M IC METHOD 309
capital production relationship still determined the distribution o f the
national income between wages and profits— i.e., it determined the
total amount o f profit available over the economy as a whole for
allocation among the individual capitalists. As capitalism developed,
changes certainly occurred in the mode o f allocation o f this profit
between industries and enterprises, but these changes were logically
and historically secondary. The socio-economic production relation
between workers and capitalists, determining as it did the proportion
o f the national income available for allocation in the form o f profit,
was still in a meaningful sense the primary and determining relation.
Given the total amount o f profit, and given the amount o f capital
employed in producing each commodity, the profit constituent in the
price of each commodity, and therefore its “ price o f production” ,
was automatically determined.
Once again, however, Marx was not content with a mere qualitative
statement o f this kind: he felt it necessary to translate the socio­
economic relations involved in this analysis into quantitative terms.
The result was his famous and much-criticised statement to the effect
that under developed capitalism “ the sum o f the prices o f production
o f all commodities produced in society . . . is equal to the sum o f their
values” , 1 together with the equally famous arithmetical illustrations o f
this proposition. What these statements and illustrations really amoun­
ted to was an assertion that under developed capitalism there was still
an important functional relationship between embodied labour and
individual equilibrium prices, which may be expressed in the following
symbolic form:

Price o f commodity = c + v + (2 s)
2(c + v)
Here c is the value o f used-up machinery and raw materials; v is the
value of labour-power; s is surplus value; E(c -|- v) is the aggregate
amount o f capital employed over the economy as a whole; and Zs is
the aggregate amount o f surplus value produced over the economy as
a whole. The formula expresses the idea that the profit constituent in
the price o f an individual commodity represents a proportionate share
o f the total surplus value produced over the economy as a whole, the
proportion being determined by the ratio o f the total capital employed
in the enterprise concerned to the aggregate amount o f capital em­
ployed over the economy as a whole. Since all the items on the right-
hand side o f the formula are expressible in terms o f quantities o f
embodied labour, it can plausibly be maintained that there is still a
causal connection, however indirect and circuitous, between Volume
I “values” and Volume III “ prices o f production” — i.e., between
1 Capital, V ol. Ill, p. 157.
310 STUD IES IN THE L A B O U R T H E O R Y OF VALUE
socio-economic production relations and the prices at which com-
modities actually tend to sell under developed capitalism.
This causal connection is clearly a rather complex one, particularly
when it is borne in mind that for the sake o f simplicity I have delibera­
tely abstracted from the complications caused by the existence of
different turnover periods for the two elements o f capital, and also
from the very difficult issues associated with the so-called “ trans­
formation problem” . It is understandable that the above formula should
not have appeared very often in popular Marxist writing: clearly no
revolution would ever have been achieved if this formula had been
inscribed on the red banners. Much more suitable for this purpose was
the familiar proposition put forward in the first stage o f the develop­
ment o f Marx’s theory o f value in Volume I o f Capital. But it must be
strongly emphasised that neither the Volume I analysis nor the Volume
III analysis, taken by itself, can properly be said to constitute the
Marxian theory o f value. The theory of value as Marx developed it was
a subtle and complex compound o f the Volume I and Volume III
analyses, and we cut ourselves off from all hope o f understanding it if
we consider it as anything less.
If this interpretation o f Marx’s theory o f value is correct, it follows
that any criticism o f the theory based on the assumption that it is a
crude and primitive over-simplification is entirely misconceived. The
only really valid criticism of it which can be made, I would suggest, is
one o f precisely the opposite type— that for our present purposes today
it is unnecessarily complex and refined. I am thinking here o f two
aspects o f the theory in particular. First, there is the quite extraordinary
way in which it draws upon and unites certain basic ideas o f sociology,
economic history, economics, and (up to a point) philosophy. In
Marx’s hands, the theory o f value is not simply a theory which sets out
to explain how prices are determined: it is also a kind o f methodological
manifesto, embodying Marx’s view o f the general way in which eco­
nomics ought to be studied and calling for a restoration o f the essential
unity between the different social sciences. In Marx’s time there was
much to be said for the adoption o f this line o f approach, given certain
points o f view which were then current in the field of economics. It
was indeed vitally important at that time to reassert the essential unity
between economics and the other social sciences (particularly sociology)
which Adam Smith had established but which the “ vulgar” economists
who followed Ricardo had gone far to destroy; and the theory o f value
had traditionally been regarded as an appropriate vehicle for the pro­
mulgation o f methodological recommendations o f this type. Today, of
course, it remains as important as it ever was to call for inter-disci­
plinary co-operation in the social sciences. But I am not convinced
that it woula any longer be practicable to achieve that very high degree
 KARL M A R x ’ s E C O N O M I C M E T H O D 311
o f integration which Smith and Marx still found possible. Nor am I
convinced that the theory o f value would any longer be the proper
medium for the embodiment o f an integrationist methodology. The
role of the theory o f value (in the traditional sense o f a theory o f price
determination) in the general body of economic analysis is much more
modest today than it was in Marx’s time, and there is no longer any
very compelling reason why a theorist wishing to bring sociology or
economic history into his economics should feel obliged to start by
reforming the theory o f value.
If he did decide to start in this way, however, and set out to bring
sociology into the picture by demonstrating the existence o f a qualita­
tive and quantitative relationship o f a causal character between rela­
tions of production and relative prices, should he make the quantitative
link-up in the particular way that Marx did? This is the second aspect
of Marx’s theory which I had in mind when stating that it seemed too
complex and refined for present-day use. Joan Robinson has recently
suggested1 that it was an “ aberration” for Marx to tie up the problem
of relative prices with the problem of exploitation in the way that he
did. I am not myself convinced that it was in fact an “ aberration” : as
I have just stated, there were very good reasons, given the particular
views against which Marx had to fight, for the adoption o f this parti­
cular method of tying them up. Today, however, it does seem to me
that Marx’s method of making the quantitative tie-up between eco­
nomics and sociology tends to obscure the importance o f the infusion
o f sociology rather than to reveal it. Certainly, at any rate, generations
o f Marx-scholars have felt that they have proved something important
about the real world when they have shown that in some moderately
meaningful mathematical sense the “ sum of the prices” is equal to the
“ sum o f the values” . I am now persuaded that this was in some measure
an illusion. In my more heretical moods, I sometimes wonder whether
much o f real importance would be lost from the Marxian system if the
quantitative side o f the analysis o f relative prices were conducted in
terms o f something like the traditional supply and demand apparatus—
provided that the socio-economic relationships emphasised by Marx
were fully recognised as the basic cause o f the existence o f the prices
whose level was shown to vary with variations in supply and demand,
and provided that these Marxian sociological factors, where relevant,
were also clearly postulated as lying behind the supply and demand
schedules themselves.2
1 J. Robinson, Collected Economic Papers (O xford, 1965), V o l. III, p. 176.
2 In m any cases, o f course, M arxian postulates w ou ld have to replace those com ­
m only em ployed today. A M arxist, for exam ple, in analysing the forces lying behind the
demand curve, could hardly base his analysis on the assumption that the consum er
acted (in some m ore or less sophisticated w ay) so as to maximise the net incom e or
utility he received from his purchases.
 312 STU D IE S IN THE L A B O U R T H E O R Y OF VALUE

IV
Marx’s theory o f value, as we have seen, was a complex piece o f
analysis, replete with profound methodological implications, which
depicted in a general way the process whereby the causal relationship
between relations o f production and relative prices was gradually
modified as “ simple” commodity production was transformed into
capitalist commodity production. For the purposes o f this theory, the
only change within capitalism which it was necessary for Marx to take
into account was the emergence o f an average or normal rate o f profit
as a result o f the extension o f competition between capitalists. When
Marx turned to the task o f elucidating the “ laws o f motion” o f
capitalism, however, it was o f course precisely the changes taking place
within capitalism as the system developed which assumed paramount
importance. And here Marx laid considerable emphasis on the techno­
logical changes associated with the development o f capitalism, particu­
larly in its so-called “ Modem Industry” phase. “ Modem Industry” ,
wrote Marx, “ never looks upon and treats the existing form o f a
process as final. The technical basis o f that industry is therefore revolu­
tionary, while all earlier modes o f production were essentially con­
servative.” 1 The really significant difference between the “laws o f
motion” put forward by Smith and Ricardo and those put forward by
Marx is that in the case o f the latter technological change appears as a
crucial determining factor. It was indeed in terms of the mutual
interaction o f technological change and changes in the relations o f
production that Marx endeavoured to explain the main “ innate
tendencies” o f the capitalist system. In the short period, Marx argued,
the “ constant revolution in production” associated with technological
change, taking place as it did within a social framework which con­
tinually limited and restricted it, would be accompanied by “ sudden
stoppages and crises in the production process” .2And in the long period,
the mutual interaction o f technological change and relations o f pro­
duction would produce certain other equally unpleasant consequences.
In order to illustrate the general method o f analysis used by Marx in
this part o f his enquiry, let us consider, first, the law o f the falling
tendency o f the rate of profit, and, second, the so-called “ law of
increasing misery” .
1 Capital, V o l. I, p. 486. I11 a footnote to this passage, M a r x quotes a w ell-k n o w n
passage from the Communist Manifesto: “ T h e bourgeoisie cannot exist w ithou t con-
tinually revolutionising the instruments o f production, and thereby the relations o f
production and all the social relations. Conservation, in an unaltered form , o f the old
modes o f production was on the contrary the first condition o f existence for all earlier
industrial classes. Constant revolution in production, uninterrupted disturbance o f all
social conditions, everlasting uncertainty and agitation, distinguish the bourgeois
epoch from all earlier ones . . . ”
* Capital, V o l. Ill, p. 244.
 KARL M A R X ’ S E C O N O M IC METHOD 313

The basic assumptions lying behind both these laws can best be
explained with the aid of Marx’s three basic ratios, viz.:
£ = organic composition of capital
-v = rate of surplus
r value
—;— = rate of rprofit
c+ v

As capitalism develops, according to Marx’s account, cjv tends to rise

as a result of technological changes, which Marx assumed would
normally take a predominantly labour-saving form. This rise in cjv is
associated with an increase in productivity in (inter alia) the wage-goods
industries, which in its turn induces a tendency for s/v to rise. The
mutual interaction of technological change and relations of production,
in terms of which Marx explained the developmental process, operates
primarily through the changes which it brings about in these two key
ratios and in their relation to one another.
According to Marx, these changes in the ratios will lead to a long­
term tendency for the rate of profit on capital to decline. As we see
from the simple identity:
s
S V

the rate of profit will tend to rise if s/v rises and to fall if c j v rises. Now
both these ratios, on Marx’s assumptions, will in fact rise as capitalism
develops, so that the net effect upon the rate of profit would seem at
first sight to be indeterminate. For reasons I have explained elsewhere,1
however, Marx believed that the effect upon the rate of profit of the
rise in c j v would eventually win out over that of the rise in s[v, so that
the rate of profit would in fact tend to fall over time. In other words,
the advance of capitalism would itself tend to weaken the very spring
and stimulus of capitalism—as Smith and Ricardo, although for very
different reasons, had already maintained.
The changes in the two key ratios would also, Marx argued, contri-
bute to an important historical process which has been variously called
“increasing misery”, “impoverishment”, and “social polarisation”.
The rise in c j v means the displacement of labour by machinery, which
swells the pool of unemployed and exercises a substantial downward
1 Economics and Ideology, pp. 133-4.
 314 ST U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

pressure on the level of real wages. The effect of this pressure, together
with that exercised by the formerly independent artisans and peasants
e labour market, is such that real
wages per head rise, if indeed they rise at all, only very slowly and
inconsiderably. The rise in s j v means, by definition, an increase in the
share of the national income going to the capitalists and a decrease in
the share going to the workers, so that even if the workers’ real wages
rise absolutely they still suffer relatively to the capitalists. The social
polarisation which results from these processes is accentuated by the
growth of monopoly in the ownership of capital; and the misery-
increasing effects of all this are enhanced by the growing degradation
of the labourers in manufacture to the level of the appendage of a
machine.
Naturally Marx’s analysis of these “laws of motion” was much
more sophisticated and much less schematic than I may have suggested
in this very brief account. But Marx did, I think, really believe that
these “laws” and “tendencies” (as well as certain others, such as the
“law” of the increasing severity of cyclical crises), would, in spite of
the various qualifications and modifications and “counteracting influ­
ences” which he was usually careful to insert, in fact reveal themselves
on the surface of economic reality in the course of time as capitalism
developed. If they never did so, why should the expropriators ever be
expropriated?
Now it is a simple fact that most of Marx’s “laws of motion of
capitalism” have not revealed themselves on the surface of economic
reality, at any rate during the last quarter of a century and at any rate
in the advanced capitalist countries. The rate of profit in the Marxian
sense, so far as one can gather from the rather inadequate data which
is available, has not tended to fall; only some of the predictions em­
bodied in the “increasing misery” doctrine—and those probably not
the most important ones—have been fulfilled; and economic crises of
the classical type, so far from increasing in severity as they indeed
appeared to be doing in the 30s, seem to have virtually disappeared.
Clearly we should not “blame” Marx for this, any more than we
should “blame” Ricardo for the even worse failure of most of his
predictions. In Marx’s time the tendencies which he described and
analysed had in fact been revealing themselves on the surface of
economic reality—or at any rate were commonly believed to have
been doing so—for some considerable time. All Marx really did was
tion that the relevant economic facts would remain substantially the
same and retain the same relative positions on the scale of relevance,
and he cannot be blamed if the tendencies he analysed have in fact been
offset by the emergence of various new factors which he could not
 KARL M A R x ’ s E C O N O M I C M E T H O D 315

possibly have foreseen. But to say this is not of course to dispose of

of the emergence of these new factors.
It is obvious that the particular “laws of motion” developed by Marx
can no longer be used today as a guide to what is actually going to
happen as capitalism develops further. This does not mean, however,
that they may not still be useful, even as they stand, for other and more
modest purposes. They may still be useful, for example, as aids to the
understanding of the development of capitalism up to Marx’s time.
They may still be useful in some of the less advanced countries as a
guide to the actual situation there. And even in the more advanced
capitalist countries, they may still be useful as a sort of awful warning
of what might happen if the tempo of social legislation and trade
union activity were allowed to slacken. But these are extremely limited
uses compared with those which Marx himself had in mind when he
designed his model. Broadly speaking, and subject to a number of
qualifications which will be made below, it can properly be said that
all that really remains of Marxian economics today is the body of
general methods and tools of analysis which Marx employed to
analyse the facts of his time.
V
The most effective way of demonstrating the validity and utility of
these methods and tools, of course, would be to use them to construct
a completely new model of capitalist development in which the postu­
lated “laws of motion” reflected tendencies which were actually mani­
festing themselves on the surface of reality. Pending the construction
and testing of a new Marxian model of this type, however, all we can
really do is to attempt to introduce certain basic Marxian ideas into
orthodox economic theory, particularly those parts of it where there
appear to be deficiencies due to a neglect of the sociological factors
which Marx emphasised. In recent years, it is true, something of this
kind has in fact been occurring on quite a large scale: we have indeed
been witnessing, as Mrs. Robinson has pointed out, “the same sort of
infiltration of Marxian ideas into economic theory as had already
occurred in history”.1 Sometimes this infiltration has been conscious,
as in the case of Kalecki, Lange, Sraffa, and Mrs. Robinson herself.
More often it has been unconscious, as in the case of Harrod’s growth
model and Richardson’s Information and Investm ent. It is only natural
that the recent rediscovery of the importance of certain typically
Marxian problems should have been accompanied by the rediscovery
1 Collected Economic Papers, Vol. Ill, p. 149.
316 stud ies in th e la b o u r t h e o r y of v alue

of certain typically Marxian methods and techniques. But there still

remains a great
Take, for example, the theory of monopoly. Marx’s general analysis
of value and distribution, it is true, was worked out primarily with
reference to a world of more or less free competition. But his discussion
of the interrelations between the growth of monopoly on the one hand
and the growth of economic instability on the other was far-reaching
and acute, and he foresaw with remarkable accuracy some of the basic
features of our contemporary world of monopolies. Thus, starting
from what we know of his vision and general method of analysis, it is
fairly easy to reconstruct the line of approach which he would probably
have adopted in an examination of the contemporary trends. In the
first place, he would certainly have emphasised that individual mono­
polies in different industries should be looked at not in isolation but in
the context of a new monopolistic stage in the development of capita­
lism—a stage in which monopoly had become intimately connected
with imperialism and the new functions of the state, and in which the
interrelations between monopoly, accumulation and instability had to
some extent taken on new forms. In the second place, he would prob­
ably have insisted that monopolistic price-phenomena should be
studied in close connection with the main characteristics of this new
stage of development; that attention might more profitably be directed
to analysing the effects of monopoly on the prices of broad g r o u p s of
goods and services (wage goods and labour-power, for example) than
to analysing its effects on the prices of individual goods and services in
isolated markets; and that priority should be given to the analysis of
the leading forms of monopoly, notably oligopoly. He would almost
certainly have criticised the tendency of many monopoly theorists to lay
their main emphasis on the qualitative resem blance between the “mono­
poly position” of the small tobacconist at the comer and the monopoly
position of a firm like I.C.I. Such an approach, he might have said,
which starts off by saying in effect that all men are monopolists, is
likely to discourage economists from going on to make the vitally
necessary distinction between weak monopolists and strong ones. The
infiltration of this kind of attitude into orthodox monopoly theory
would, I think, be likely to effect an appreciable improvement in the
realism and relevance of the theory.
The same can be said of the infiltration of a Marxian attitude into
the theory of wages. Here it is true that the orthodox theory has
certain important achievements to its credit, particularly in the field of
the analysis of short-run wage levels in individual industries under
monopolistic conditions of various kinds; and it is also true that the
general laws which Marx himself formulated concerning long-run
trends in wages have been largely invalidated by the unexpected con-
 KARL M A R X ’ S E C O N O M IC METHOD 317
currence and increase in intensity of certain “counteracting influences”.
theory of wages depended are not still operative in the modem world.
In particular, any new theory of long-run trends in wages which neg­
lected to lay emphasis on the accumulation of capital, and the techno­
logical changes and market problems which it brings about, would be
likely to possess little interest or relevance.1 In an important sense, it is
still true to say in our modem world that “relative surplus-population
is . . . the pivot upon which the law of demand and supply of labour
works”.2 And it should also be borne in mind that the above-men­
tioned “counteracting influences” have as yet been unable to eliminate
economic instability or to prevent the growth of monopoly, both of
which in themselves may have significant effects on wage levels. Once
again there would seem to be a decided advantage in bringing the
relations of production in, as Marx always did, on the ground floor.
Finally, a brief mention may be made of one of the most important
areas of all—the theory of profit. Surely in this field nothing would be
lost, and much might be gained, by an attempt to explain the origin
and persistence of net profit in terms of, rather than in abstraction
from, the existence under capitalism of a class monopoly of capital.
And surely Marx’s theory of the falling rate of profit, in spite of the
failure of the prediction which Marx based on it, may have something
to offer those modem theorists who are concerned with the problem
of secular changes in the rate of profit. Whatever else may be said
about it, at least it puts before us the interesting suggestion that changes
in the rate of profit may depend not on technological factors alone
but rather on the interaction of these with sociological factors.
What I am trying to say here, putting it in general terms, is simply
that many modem Western economists have still to learn one funda­
mental lesson from Marx—that the analysis of economic categories
ought so far as possible to be conducted in terms of, rather than in
abstraction from, “relations of production” in Marx’s sense. The really
original and essential aspects of Marx’s economic model are the vision
and general method of analysis which Marx employed in building it.
Everyone pays lip-service nowadays to the aim of bringing sociology
back into economics, but somehow no one ever manages actually to
achieve this aim, particularly in sensitive spheres like that of the theory
of distribution where we most need to achieve it. Whatever one may
think about Marx, at least he did achieve it—and by no means least in
the sphere of distribution theory. We cannot simply reproduce his
1 C f. R ogin, The Meaning and Validity o f Economic Theory (N ew Y o rk , 1956), pp.
407-8. See also ibid., p. 405*
* Capital, V o l. I, p. 639.
318 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

achievements today: “official” textbooks of Marxian political economy

are r n m in g tn lo o k m o re and m o re anfediln vi^ n w ith e v e r y y e a r fhaf
passes. But we can experiment with the use of Marx’s general economic
method. A vision and method which produced such interesting results
when applied to the capitalism of Marx’s day are surely capable of
producing at least som e useful results when applied to the not so very
different capitalism of our own day.

Absolute Value and Exchangeable Value
(D. Ricardo), n o , 114
Abstinence, 123, 24$, 246
Accum ulation, x x x v iii, 33, 46 ff., 54 » 56,
57 ff-, <55 ff, 78 79 90
, , 93 94
, 9 1 , 92 , ,
10 0 ,10 1, 105, 137, 144, 184, 186, 247,
301, 316, 317
See also Capital
Adam Smith and the Classical Concept o f
Profit (R. L. M eek), 54
Adam Smith as Student and Professor (W . R.
Scott), 47, 55, 56, 61
Adams, H. P., 131, 132, 134
Agriculture, iv, 24, 25, 26, 30, 57, 59, 89,
90 , 91. 92 , 93 94
, , 140, 150, 173
265, 270, 273, 274, 277, 280, 281, 293
See also Land
Alienation, vii ff., 136 f f , 174, 175, 176
A llocation o f resources, 58, 227, 228, 247,
248, 249
See also C apital, Labour
American Economic Review, 269, 270, 271,
272, 273, 274, 276
Anecdota (A . Ruge), 132
A nnenkov, P., 143
Anti-Diihring (F. Engels), 55, 86, 150, 152,
170, 182, 219, 223, 257, 258, 259, 262,
264
Aquinas, 12, 13, 14, IS
Aristotle, ii, 13, 216, 295
Austrian(s), 250, 251, 252, 254
Autobiography (J. S. M ill), 246
B ailey, S., 87, 122, 193, 244
B ank o f England, 86
9
Barbon, N ., 15, ib , 17, IS » 161
Barone, E., 255
“ Basic*1 and “ non-basic” products, x li
Baudeau, N ., 56
Bauer, B ., 131
Bell, J. F., 255
Bellam y, R ., 293
Bentham , J., 88, 2x8
INDEX
Bousquet, G .-H ., 204
B ray, J. F., 130
“ B reakdow n” problem , 202
Britain, iii, 18, 54, 247, 281, 283
, Britannia Languens, 20, 22
British Journal o f Sociology, 52
“ Brokerage**, 30
Brussels, 141
Bukharin, N . I., 249, 263, 264
B um s, E., 9
Caim es, J. E., 246
Cannan, E., iii, v, 45, 67
Canonists, ii, 12 -14, 74
, 212, Cantillon, R., 25, 27, 28, 29, 30, 37, 48
Capital (K. M arx), ii, v ii-x v ii, x x iv , x x v ,
x x x v i, 11, 37, 38, 62, 77, 80, 105, 138,
145, 14 6 ,1 4 7 ,1 4 8 , 149. 150, 151, 152,
154, 155, 157, 158, 16 0 ,16 1, 163, 164,
165, 166, 167, 168, 169, 1 7 0 ,1 7 1 , 173,
174 7, I S, 176, 177 .1 7 8 , 179 , 180, 181,
182, 183, 184, 185, 186, 187, 188, 189,
190, 191, 192, 193 * 196, 197 198
, , 199.
201, 205, 206, 207, 209, 210, 2 11, 213,
216, 217, 218, 220, 230, 233, 234, 235,
237, 238, 240, 241, 257, 258, 260, 261,
284, 285, 286, 287, 289, 301, 302, 303,
304 305 307
, . , 308, 309, 310, 317
Capital, iv, v , vi, viii, ix , xiii, x iv , x ix ,
x x iv , x x v i, x x x v i, x x x v ii, x x x v iii,
xli, xlii, 53, 54, 56, 57, 58, 59, 60, 84,
86, 88, 89, 90, 91, 92, 93, 94, Stf, 100,
102, 105, 114, 115, 116, 119, 123, 136,
142, 151, 176, 182, 187, 188, 190, 206,
245, 293, 301. 302 , 303, 304, 30S, 306,
307, 308, 309, 310, 312, 314, 317
“ active” and “ passive** uses of, iv , v, vi,
xliii, 25, 26
agricultural, 24, 25-6
circulating, 103, 104, 105
constant, 120, 180, 190, 192, 235, 304
durability of, 100, 103, 105, 107, 109,
110, iii

Bernal, J. D ., 131, 132, 133 fixed, 96, 103, 104, 105, 107, 108, 109,
Bernstein, E., 172, 2 11, 2x2, 213, 214, 239 n o , III
Bism arck, O . von, 211 industrial, 1 7 ,1 8 , 24, 84
Blake, W . J., 212 merchant, 17, 23, 24
B o hm -B aw erk, E. von , 160, 161, 16 3 ,16 4 , m obility of, v, vi, xliii, 27
1 9 1 ,1 9 4 ,1 9 7 , 203, 204, 213, 214, 235, organic com position of, xvi, x viii, x x i,
^ ^ ^ ^ 3. 25^ 251^292 ^ ^ ^ ^ x x x v ii, x l, x li, 180, 18 1,18 6 ,18 8 ,19 3 ,
195, 197, 209, 210, 2 11, 227, 304, 308,
H ilferding), 162, 189 313
simple, 205
Boisguillebert, P., 11, 39
Bolshevik, 273 used-up, 190
B ortkiew icz, L. von , x x ii, x li, 194, 195, variable, 120, 180, 193, 209, 304
196 — and m oney, 25
B oudin, L. B ., 212 — and “ stock” , 54
320 S T U D IE S IN THE L A B O U R T H E O R Y OF V A L U E

Capital— cont. Classical political econom y— cont.

— as “ advances” , 57
— goods. x x iT 78. 177. 236. 248. 293
See also Accum ulation, Capitalism ,
Labour, Profit, Stock
Capitalism , v , vi, ix , xh i, x iv , x v , x v i, xvii,
x x iv , x x vii, x x x v i, x x x v ii, x x x v iii,
x l, xliii, 18, 34, 37, 50, 65, 66, 70, 82,
106, 118, 128,139, H 7 , 152, 154. *55,
171. 175 179
, .180, 184, 187, 189,
198, 200, 20Z,206, 212, 213, 214, 218,
220, 221, 222,225, 226,
264,266, 267, 268, 270, 271, 272, 274,
277, 280, 291 ff., 296, 301, 302, 303,
305 307 308
, . , 309, 310, 312, 313,
315 317, , 318
com petitive, 156, 182, 242, 289, 292,
293, 297
developm ent of, iv, 7 -8 ,18 ff., 24, 26 ff.,
7 4 -5 ,12 8 ,14 6 ,1 8 0 ,18 1,1 9 8 ,2 2 3 ,2 2 8 ,
229, 230, 231, 249, 287, 291-3, 301,
309 313. , 3i6
See also Accum ulation, Capital, C o m ­
m odity, M on op oly
C a ry ,J ., 18
Cassel, G ., 251, 255
Causation, principle of, x iv , x x x , 129
C aze n o ve ,}., 124
Cham berlin, E., 74
C iv il Government (J. Locke), 21, 22
C iv il society, 40, 45, 134, 135
Clark, J. B ., 251
C la r k ,} . M ., 251
Class(es), v , xiii, x x x v i, x l, 22, 49, 54, 59,
7S, 128, 146, 184, 215, 227, 228, 229,
237, 290, 301, 302, 303, 307, 312, 317
rentier, 249
— distinctions, 221, 222, 223
— incomes, vi, vii, x x v , x x viii, x x ix ,
xiii, xliii, 2 4 ,2 7 ,4 9 ,1 0 0 ,10 2 ,17 8 ,2 1 5 ,
225, 304, 307
— o f free labourers, 184
— relations, vii, 54, 59, 232
— struggle, 134. 140, 146
— under feudalism, 46
See also Capitalism , Labour, M erchant,
Profit, W o rk in g class
Classical political econom y, x v , xvii, x x x i,
16, 21, 225, 229, 252, 254, 255, 284
beginnings of, 20
m ethod of, 85-6
transition to, 18 ff., 27
— and Canonist theory, 12
129-30
— and the concept o f labour cost, 33 ff.,
135 ff
— defined, 11
— influence of, on M arx, 135 ff.
— on accumulation, 83-5
— on interest, 25
— on the labour theory. 20 ff., 37 ff.t
44, 82 ff., 126, 227, 240
— on “ natural price” , 24 ff., 27 ff., 98,
116, 181, 204, 286
— on profit, iv, 24, 54
— on relations o f production, 250, 256
— on surplus value, 126-7
193 , — on the task o f value theory, 11, 83 ff.
— on use value and exchange value, 72
260,261,263,— on utility and price, 162
See also P etty, Ricardo, Sm ith
Clem ent, S., 39
314 , Coal Question (W . S. Jevons), 247, 248
Cobdenite (circles), 252
C ole, G. D . H ., 241
Collected Economic Papers (J. Robinson),
3
ii
Collected Works (V. I. Lenin), x v
Collected Works (D. Stewart), 55, 60
Collected Works o f Marx and Engels (ed.
Riazanov), 131
C ollective labourer, 217, 219, 220
Collectivisation, x xx i, 269, 270, 271, 273,
277, 278, 279, 280, 281, 284, 296
C olonial system, 38
Com bination Laws, 124
C om m erce, 14, 17, 30, 34, 39, 40, 4 1, 43,
56, 60, 72, H * . 142, 291
See also Trade
Com m odity(ies), xiii, x iv , x v , x v ii, xx ,
x x iv , x x v , x x v i, xx vii, x x ix , x x x ii,
xx x iii, x x x v , x x x v ii, x x x v iii, x x x ix ,
x l, x li, x iii, 2 1,4 8 ,6 1, 62, 64, 15 4 ,15 5 ,
157, 159, 163, 179, 216, 264, 271, 272,
277, 278, 293, 302, 305, 306, 307, 308,
309. 310,
definition of, 38, 152, 174, 2$7, 277, 278
fetishism of, v ii ff., 138, 174 ff.
freely reproducible, 30, 98, 106, 177,
204, 20s
— production, xi, xii, xiii, x iv , x v , xvi,
x x iv , x x v iii, 127, 139, 142, 146, 149,
151, 152, 153, 154, 155, 158, 162, 166,
167, 168, 174, 175, 176, 180, 184, 199,
220, 223, 230, 241, 249, 257, 258, 259,
261, 262, 263, 272, 277, 278, 280, 281,
282, 287, 288 f f , 301, 302, 303, 307
— production, capitalist, x v , x x v i, 32,
38, 65, 66, 150, 151, 152, 153, 155,
156, 180, 182, 189, 287 ff., 312
— production, pre-capitalist, x v , 154-5>
198-200,287 —
— production, simple, x v, x x iv , x x x ii,
x x x iv , x x x v i, xl, 66, 155, 156, 180,
182, 198, 218, 232, 266, 268, 287,
288 ff., 303, 304, 30S, 306, 311
— production, socialist, 256 ff.
— relation, 277-8, 280, 306, 308
 INDEX 321
C om m odity(ies)— cont. Critique o f the Gotha Programme (K. M arx),
See also Capitalism , Pre-capitalist socie­ 186, 259, 260
ties, Production ________________ Critique of the Hegelian Philncnphy o f Tgw
Common Sense o f Political Economy (P. H. (K. M arx), 131, 132
W icksteed), 251 Critique o f Welfare Economics (I. M . D .
Com m unism , ix , 132, 199, 258, 260, 262, Little), 255
265, 267, 275, 277, 280, 281 C rocs, B ., 215, 220, 221, 222, 223, 224,
Communist Manifesto (M arx and Engels), 225, 239
4 312
I I» Crusoe, Robinson, 175, 227, 296
C om petition, vi, vii, viii, xiv, xvi, xvii, Cunningham , W ., 13
x x v , u , 23, 27, 30, 32. 33 50 94 98
, , , , C urrency problems, 86, 87, 88, 89, 95
144, 1 4 5 ,1 6 2 ,1 7 7 , 181, 187, 188, 190,
209, 210, 227, 231, 276, 284, 286, 291, Daire, E., 39
303, 305, 307, 308, 312, 316 Dante, 211
foreign, 17, 19, 27 David Ricardo: A Centenary Estimate
internal, 18, 27 (J. H. Hollander), 84
— o f capitals, x v i, x x x v ii, xliii, 88,89,181 D eath penalty, 19
— o f labourers, 50 Decline o f Ricardian Economics in England
See also Capitalism, Price (R. L. M eek), 125
C oncept o f difference, 222-s D e Economist, x li
Condition o f the Working Class in England in Dem and, xvii, xviii, xx viii, xliv, 11 , 30,
1844 (F. Engels), 141 44, 49, 72 ff., 86, 91, 144 179
, , 184,
Considerations on the East-lndia Trade, 39 213, 217, 219, 252, 260, 281, 286, 311
Constant returns, xvii, x x x v , x liv , 35,74,178 absolute, 73
Consum ption, x x x v , 2 0 ,2 8 ,3 1 ,9 1 ,9 5 ,1 1 1 , effective,73 74
, , 92, 213, 214
139, 142, 151, 153, 154 155, , 163, 257, foreign, 89
305 influence o f, upon value, 16, 35, 50 ,12 2 ,
means of, 260 178-9, 205, 219, 345
surplus over, 60, 14s, 278 — curve, 255, 311
theory of, 51, 73, 248, 252 — for labour, x x x v iii, 186, 317
— goods, x x i, 194, 195, 196, 279 — price, 253
See also W ants See also Supply and Dem and, U tility
Conversations on Political Economy (J. Democracy and the Labour Movement (ed. J.
M arcet), 128 Saville),53
C o m fo rth , M ., 9 Denis, H ., 237
C o m Laws, 84, 9 1-2, 247 Depreciation, 180, 183, 205
C ost, 44, 66, 67, 73, 123, 183, 231, 240, Destutt de T racy, A . L. C ., 113
245, 251, 252, 261 Deutsch-Franzdsische Jahrbiicher, 133, 135,
opportunity, vi, 250, 252 258
paid-out, 26, 27, 49, 59 Development o f Economic Doctrine (A. Gray),
prim e, 27, 30, 31 164
producers’ , 12, 16, 18 Development o f Economic Thought (ed.
real, 123, 245, 246, 250, 251, 252 H. W . Spiegel), 251
w age, x x x v , 22, 23, 34, 83 Development o f English Thought (S. N .
— accounting, 272 Patten), 30
— o f production, 11, 14, 18, 22, 28, 32, Dialectics o f Nature (F. Engels), 138
35 37 44 77
, , , . 98, 103, 1 16, 119, 123, Dim inishing returns, 90, 92, 93, 94, 247
162, 213, 245, 250, 271, 279, 294, 308 Discourse o f the General Notions o f Money,
— o f training, 77, 170-3 Trade and Exchanges (S. Clem ent), 39
— o f transport, 12, 269 Discourse of Trade (N . Barbon), 15-16
See also Price, Production, T h eo ry o f Discourse upon Trade (D. N orth), 25
Value, Value, W ages Dissertation sur la Nature des Richesses (P.
Cotterill, C . F., 122 Boisguillebert), 39
Credit, viii------------------------------------------- Distribution, x x x v i, 39, 79, 88, 102, 112,
Crisis, 228, 238, 259, 271, 312, 314 114, 126, 150, 151. 153. 154 .16 4 , 178,
Critique o f Political Economy (K. M arx), viii, 179, 18 2,18 3 , 221, 228, 229, 230, 235,
xii, 11, 39. 45, 64, 86, 131, 134, 141, 236, 237, 246, 247, 248, 251, 257, 271,
142, 146, 148, 149. 150, 152, 158, 161, 273 , 303, 309, 3i6, 317
162, 163, 165, 166, 167, 170, 174, 177, principle o f, 260, 271, 272
179, 246, 296, 302 productivity theory o f, 122, 250, 251
322 S T U D I E S IN THE L A B O U R T H E O R Y OF V A L U E
Distribution— cont.
theory o f, x x ix , x x x , xli, 106, 215, 229,
232, 233, 23», 255, 256
— and accum ulation, 84, 96, 100
See also Income, Profit, Rent, W ages
Divine Comedy (Dante), 211
D ivision o f labour, 37, 77, 86, 145
economies o f, 19, 23, 46
natural, 166
territorial, 38
— and the “ extent o f the market*’ , 62
— in manufacture, 37-9, 61-2
— in society, xii, 37 ff., 48, 60 ff., 67, 73,
80, 82, 126, 138-9, 142, 151. 153 , 154.
155. 166, 256, 257
See also Labour
“ Dizziness w ith success” , 277
D obb, M . H., xli, 9, 17, 19, 32, 79, 80,123,
126, 127, 15 1 ,1 6 0 , 162, 18 3 ,19 2 , 246,
253 , 297
D iihring, E., 259
Early Economic Thought (A. E. M onroe), 14
Early English Tracts on Commerce (ed. J. R.
M cC u lloch), 39
Easy Lessons on Money Matters (R. W h ate-
ley), 248
Eaton, J., 9
Economic and Philosophical Manuscripts o f
1844 (K. M arx), 301
Economic Anthropology (M . J. Herskovits),
294
Economic Journal, x x ii, 9, 74, 195, 196, 197,
201, 23s, 237, 279
Economic Laws o f Socialist Society in the
Light o f Joseph Stalin’ s Last Work
(O . Lange), 226
Economic Problems o f Socialism in the
U .S .S .R . (J. V . Stalin), x x x , 270, 273,
274, 275, 276, 277, 278, 279, 280, 281,
282, 283, 284, 292
Economic Theory o f the Leisure Class
(N. I. Bukharin), 249
Economic Writings (W . Petty), 16, 36, 39
Economica, 9, 89, 125, 126, 286
Economics and Ideology and Other Essays
(R. L. M eek), ii, iii, xvii, x x x v , xli
Economics o f the Transition Period (N . I.
Bukharin), 263
Šconomistes Financiers du X V llI* S ih le
(ed. E. Daire), 39
Edinburgh Review, 88
Edmonds, T . R ., 125_________________
Education, 49, 77, 170
Effects o f Civilization (C. Hall), 126
Einzig, P., 294
Elements o f Marxian Economic Theory and
its Criticism (W . J. Blake), 212
Elements o f Political Economy (James M ill),
121, 123
Engels, F., vii, ix, x , xi, 55, 138, 147, 174,
223, 233, 262, 263, 275, 278,
30 S
influence of, upon M arx, 134-5, 14 ° ff.
— on concept and reality, 214
— on the definition o f political econom y,
264, 269
— on the ethical and political im plica­
tions o f the labour theory, 128
— on H egel and the Y o u n g Hegelians,
130-1
— on logical processes, 24
— on M a rx ’s m ethodology, 148-9,
197-8, 224, 302, 303, 304
— on the merchant o f the M iddle Ages,
13. 17
— on relations o f production, 19
— on skilled and unskilled labour, 170
— on value and com m odity production,
86, 199 , 212,257-9
Engels, F., Stati i Pisma, 1838-1845, 258
Engels on “ Capital” , 13, 17, 24, 199, 212,
214, 233, 238
England, 58, 84, 135, 141. 167, 211
Entrepreneur, iv, v, vi, 28-9, 56, 248
Equilibrium , 50, 53, 71, 74, 181, 205, 226,
289, 294, 304
general, x x x , xliv , 253 ff., 298
theory o f econom ic, 226, 227, 228, 239
— between production and consum p­
tion, 267 f f
— conditions, 196
— defined, 31
— price, xiv, xvii, x ix , 28, 30, 34, 35, 48,
77, 80, 85, 103, 104, 120, 123, 162,
168, 177, 178, 182, 183, 186, 205, 206,
208, 209, 217, 228, 230, 232, 245. 306,
307, 308, 309
See also Price, T h eo ry o f Value
Essai sur la Nature du Commerce en General
(R. Cantillon), 28, 29
Essay on Marxian Economics (J. Robinson),
234, 235, 237, 238, 261
Essay on the Profits o f Stock (D. Ricardo),
88, 90, 92, 93, 94, 97, 102
Essay towards Regulating the Trade and
Employing the Poor in this Kingdom
(J. C ary), 18
Essay upon Money and Coins (J. Harris), 29,
30
Essays (D. H um e), 41, 68
Essays on Some Unsettled Questions o f
Political Economy (J. S. M ill), 245
Essence o f Christianity (L. Feuerbach), 131
Estrangement, vii ff., 136 ff., 174, 175, 176
Ethics, 52, 215, 219, 221, 295-6
— and the labour theory, 125 f f , 202,
216 f f
Evolutionary Socialism (E. Bernstein), 212,
213, 214
 INDEX 323
Examination o f the Doctrine o f Value (C. F. General Theory o f Employment, Interest and
Cotterill), 122 Money (J. M . Keynes), 127, 244
Exchange, xii, x v i, x x x iii, 12, 62, 63, 67, “ Geneticists” , 266, 269
86, 124, 138, 145. ISO, 153 55 159
, * , , German Ideology (M arx and Engels), 137,
160, 161, 162, 174, 199, 200, 207, 212, 138, 139
, 141, 142, , 147 149
219, 230, 256, 258, 268, 277, 278, 287, G erm any, 133, 134, 135, 2 11, 251
302, 303, 305, 306 Gervaise, I., 41
beginnings of, 163, 199 Glasgow Lectures (A. Smith), iii, 45-57, 73
conditions of, 63 G lasgow U niversity, 9, 45
external phenomena of, 68 Gossen, H ., 213
m edium of, 41, 51 G ray, A ., 164
m ode of, 80, 145, 146, 151, U 3 , *54 G ray, S., 123, 125
“ natural” , 13, 70 Graziadei, A ., 215
process of, 33, 43 Growth o f English Industry and Commerce
rate of, 70, 87, 88, 89 (W . Cunningham ), 13
sphere o f, 23, 27, 79 Grundrisse (K. M arx), vii ff.
“ unequal” , 185 G uihćneuf, R ., 212, 214, 234
5
— relations, xvi, x x iv , x x v i, 5 2 ,15 1, IS , Guild(s), 199, 212, 290, 295
156, 164, 173, 174, 182, 198, 217, 223, Guillebaud, C . W ., 286
234, 265, 287 ff.
See also Price, Value H all, C ., 126
Exploitation, x x iv , 18 2 ,18 4 ,18 5 , 186, 201, Harris, J., 28, 29, 30, 37, 39, 41
215, 229, 235, 251, 311 H arrod, R. F., 256, 315
rate o f, xviii, x ix, x x v i, x x x v ii, 209, 237 H edonism, 254
— o f children, 185 H egel, G . W . F., 130, 132, 134, 136, 148,
— o f consumer, 17 198, 302
— o f direct producer, 17 Hegelian(ism), 130, 135, 148, 201, 203,
Extracts from Karl M arx’s “ Capital” (V. 214, 235, 238
Pareto), 204, 205, 206, 243 Herskovits, M . J., 294
High Price o f Bullion (D. Ricardo), 86, 88
H ilferding, R ., 162, 172, 189, 194, 197,
Fabian Society, 211 284
Fable o f the Bees (B. de M andeville), 40 Historical Materialism and the Economics o f
Factors o f production, xliv, 33, 122, 123, Karl Marx (B. C roce), 215, 220, 221,
239, 256, 307 222, 223, 224, 225
m obility of, 199 History o f Economic Analysis (J. A . Schum ­
Fetishism, v ii ff., 138, 174 ff. peter), ii, 66, 122, 129, 246, 2S2, 253,
Feudalism, 1 7 ,1 9 , 22, 38, 46, 13 2 ,13 9 ,15 2 , 255
154, 212 History o f Economic Thought (J. F. Bell), 255
operation o f law o f value under, 199, History o f Political Economy, iii, x x x
289 History o f the Fabian Society (E. R. Pease),
Feuerbach, L., 131,132,133, U 4 , *35,141, 211
142 H odgskin, T ., 124, 125
Fireman, P., 189 Hollander, J. H ., 84
Fisher, I., 255 Holy Family (M arx and Engels), 140, 143
Five-Year Plan (U .S.S.R .), 269 Human Nature: The Marxian View (V.
For a Lasting Peace, 283, 284 Venable), 147
Formalism, 253 ff. H um e, D ., 25, 41. 4«, 55
. 56. 68
“ Four stages” theory, iii Hunt* R . N . C arew , 240, 241
France, iii, 54, 55
, 56, 134, 13 5, 140, 283 Hutcheson* F., 27, 34,
41, 42,48, , 72, 49 75
Francis Hutcheson (W . R. Scott), 41 Hutchison, T . W ., 204, 248, 251
Franklin, B ., 40, 41
Fraud com m itted in buying and selling, 13 Iliad, 211
Frederick W illiam IV , 132 Im migration, 19
Free Exchange (Sir L. M allet), 252 Imperialism, 7-8, 316
Free goods, 72 See also M on op oly
French R evolution, 134 Imputation* 33, 251
Fundamental Thoughts in Economics (G. Income, v , x x v i, x x v iii, x x ix , x x x ii,
Cassel), 254 x x x v , x x x v i, xlii, 2 7 ,4 9 ,1 2 7 ,1 7 6 ,1 7 9 ,
Fumiss, E. S., 20, 23 182, 247, 248, 2 5 5 ,2 5 6 ,3 11
324 ST U D I E S IN THE L A B O U R T H E O R Y OF V A L U E
Incom e— cont.
national, 30, 54, 59, 215, 309, 314
real, 58
unearned, 128, 215, 225, 301
— o f consumers, 205
“ Increasing misery” , 312 ff.
Independent Labour Party, 212
Independent producers. See Production
Independent variable(s), 32, 33, 71, 162,
168, 253 ff.
Index-num ber problem , iii
Indian com m unity, ancient, 163, 257
Indian tribes o f N o rth America, 54
Industry, 18-19, 26, 38, 47, 61, 98, 128,
34 135 9
* , , U , 140, 150, 151, 186, 265,
280, 290, 301, 312
“ natural balance o f ” , 57
“ specialist” , 173
Inquiry into Rent (T. R . M ai thus), 93
Inquiry into the Natural Grounds o f Right
(S. Read), 121
Inquiry into the Principles of the Distribution
o f Wealth (W . Thom pson), 127
Intensity o f labour, 75 -7, 167-8
differences in, 77
Interest, iv, v , vi, xiii, xliii, 17, 22, 24, 25,
29, 31, 42 , 89, 90 , 91, 127, 176, 250,
2 51, 301
See also Capital
Internal developm ent, 82 ff.
International Economic Papers, 226
Introduction to a Critique of the Hegelian
Philosophy o f Law (K. M arx), 133
Introductory Lecture on the Importance o f
Diffusing a Knowledge of Political
Economy (W . S. Jevons), 248
Invariability
— in a measure o f value, iv, 68, 78, 81,
87, 99, 106, 107, 108, 109, h i , 112,
117, 119
— o f the value o f the precious metals,
95-6
Investment, 77, 267, 293
“ Invisible hand” , 58
Iron law o f wages. See W ages
Isolierte Staat (J. H. von ThUnen), 125
Jevons, H . S., 250
Jevons, W . S., 213,243, 244,247, 248, 249,
250, 251, 252, 253, 254
John Millar, Historical Sociologist (W . C .
Lehm ann), 52
Josiah Tucker (R. L. Schuyler), 41
Journal o f Economic Literature, xxiii
Journal o f the Royal Statistical Society, 247
Just price, 12, 13, 14, 74, 218, 219, 295-<5
Justice, Police, Revenue and Arms (A. Smith),
45
Kalecki, M ., 315
Karnes, Lord, 31
Karl M arx (F. M ehring), 131
Karl M arx and the Close o f his System
(E. v o n B ohm -B aw erk), 160
Karl M arx in his Earlier Writings (H. P.
Adam s), 131
Karl Marx*s “ Capital” (A. D . Lindsay),
202, 216, 217, 218, 219, 220
K aufm an, A ., 264, 266
Kaulla, R ., 13, 15, 295
K autsky, K ., 257
Keirstead, B . S., 84
Keynes, J. M ., 127, 235, 236, 244, 247, 256
Khruschev, N ., x x x
K ugelm ann, L., x , 153, 230
Labour, iv , v , v iii-x iv , xvii, x x , x x v i,
x x v ii, x x x ii, xx xiii, x x x v -x li, 59, 60,
65, 67, 302, 304-8, 313
abstract, xii, 20, 21, 22, 165, 166, 167,
169, 266, 304
annual, 20, 57, 58, 95, 120
cheap, 23, 40
com m andable, 64, 65, 66, 67,69, 70, 71,
78, 81, 98, 99 , I H , 115
concrete, xii, 21, 22, 165, 166, 304
em bodied, x x v i, x x x v -v iii, x l, 64, 69,
70, 7 1 , 80, 81, 85, 97, 99, 102, 106,
h i , 116, 117, 119 ,12 0 , 144,155, 156,
164, 165, 181, 198, 206, 208,209, 215,
218, 219, 261, 288, 289, 296,307, 309
“ freeing” of, 19, 20, 21, 183
“ hoarded” , 123
“ im m ediate” , 123
interdependence o f, 62, 139 , 153
natural price of, 48-9
necessary, 183, 190
past, x viii, 98, 177 , 183
productivity of, 57-8, 74, 77, 94, 98, 99.
105, 114, 146, 179, 205, 206, 230, 231
role of, in determination o f value, 11,
18, 2 1, 23, 34, 35 ff-, 44, 63 ff-, 76,
1 1 2 ,1 1 9 ,1 6 7 - 8 ,2 5 7
socially-necessary, xvii, xviii, 43, 167-8,
177, 178-9, 206, 212, 213, 214, 217,
219, 220, 221, 222, 241, 290
surplus, 18 2 ,18 3 ,18 4 ,18 8 ,19 0 ,2 12 ,2 13 ,
214, 215, 225, 286, 307
value of, 68, 73, 93, 99, 114, 124, 184 ff.
w h o le produce of, 60, 70, 71, 100, 121,
125, 128, 136, 205, 291, 303
— and capital, 54, 56, 59, 65, 66, 124,
137, 138, 140, 150, 182, 183, 187
— as a com m odity, 20, 221
— as creator o f utility, 21, 165, 166
— as the “ first price” , 68, 116
— force, disposition of, 20, 39, 41, 74,
1 53-4,178 -9,23 0 ,256-7,2 67,28 0 ,28 1
— in general, 20, 165, 169, 216
— o f inspection and direction, 26
 INDEX 325
Labour— cont. Labriola, A ., 221
— and land, 36-7 Laissez-faire, 56
— p o w e r, x , x i, xiii, xvii, xx iv , 20, 66, Land, iv, v, vi, viii, ix, x , xiii, xli, 25,28,29,
75, 144, 155, i 66» 167, 169, 170, 171, 30, 36-7, 42, 46, 48, 54 5 57
, <S, , 58, , 59
172, 175, 180, 182, 183, 184, 185, 186, 60, 65, 71, 84, 90, 92, 93, 94, iox, 103,
192, 197, 216, 221, 235, 272, 279, 285, 12 6 ,14 0 ,14 2 , 176, 177, 178, 1 8 2 , 199,
291, 304, 308, 309. 3l6 248, 255, 272, 277, 278, 285, 301, 303,
— tim e, x x , x x i, 3 5 ,4 3 ,7 4 ,1 1 8 ,1 1 9 ,1 2 0 , 305, 307
166, 167, 168, 169, 175, 178, 179, 183, appropriation of, 70, 79, 100, 101
189, 206, 212, 213, 236, 260, 261 See also Rent
See also C o m m o d ity, Cost, Intensity o f Landshut, S., 131
labour, D ivision o f labour, Produc­ Lange, O ., x x ix , 201, 225, 226, 227, 228,
tive and unproductive labour, Skilled 229, 230, 231, 232, 233, 239, 315
and unskilled labour Lapidus, I., 264, 266, 267, 268, 269, 278
Labour theory o f value Lassalle, F., 157, 186, 240
A dam Sm ith and the developm ent of, Lauderdale, Earl o f, 122
iii, chap. 2 passim Law(s), 58, 98, 136, 139, 149, 180, 184,
analysis of, b y M arx in V o l. Ill o f 185, 189, 190, 220, 221, 222, 224, 246,
Capital, 186 ff., 308 ff. 274, 287, 296, 297
application of, b y M arx, 177 f f econom ic, x x x i, 7-8, 31-2, 84, 96, 137,
application of, to the com m odity labour 143, 146, 182, 212, 219, 244, 249, 251,
pow er, 184 ff. 256, 259, 265, 274 f f , 299, 300, 303,
critique of, x x viii, x x ix , chap. 6 passim 304, 312, 314, 3x5
D avid Ricardo and the developm ent of, natural, 153, 256, 259, 289, 294
chap. 3 passim — and governm ent, 52
developm ent o f, after 1894, 201 f f — o f balanced developm ent, 276
developm ent of, in 18th century, ii f f , — o f reduction o f skilled to unskilled
24 f f labour, 169, 170
ethical and political significance of, x iv , — under capitalism and socialism, 265 f f
125, 216 f f See also Skilled and unskilled labour,
Franklin’s form ulation of, 41 Value
“ internal developm ent” of, 82 f f Law o f Value and the Theory o f the Unearned
M arx’s “ p ro o f” of, 164 Increment (Sir L. Mallet), 252
operation of, under m onopoly capital­ Lecture Notes on Types o f Economic Theory
ism, 284 f f (W . C . M itchell), 249
operation of, under socialism, 256 ff. Lehmann, W . C ., 52
origins of, 20 ff Lenin, V . I., x v , 146, 147, 214, 263, 264,
place of, in M arx’s system, 153 ff., 202, 265, 266, 277, 301, 302
203, 215 f f , 231 f f , 237, 304 ff. Leonticf, W . W ., x x iii
“ qualitative” and “ quantitative” aspects Letters of David Hume (ed. J. Y . T . Greig),
of, xlii, 231 f f , 239, 304 ff. 55
reapplication of, x x v iii ff., 8, 85, 156, Letters to Kugelmann (K. M arx), 153, 164,
198, 202, 242, chap. 7 passim 230, 238, 256
refinement and developm ent of, b y Lindsay, A . D ., 202, 215, 216, 217, 2x8,
M arx, 167 f f 219, 220, 221, 239
“ rejection” of, b y Smith, 79-81 Little, I. M . D ., 225
Ricardo’s place in history of, 116 f f Locke, J., 21, 22, 25, 3 7 ,12 5 , 126, 219, 240
— and the materialist approach to Longfield, M ., 124
society, vii, 52-3 Ludwig Feuerbach (F. Engels), 1 3 0 ,1 3 1 ,1 4 1 ,
— and the social division o f labour, 37 f f 148, 149, 174
— in chap. 1 o f M arx’s Capital, 157 f f L u xu ry goods, xli
— in 1 st edn. o f Ricardo’s Principles, 97 ff
— in Ricardo’s final stage, 110 ff
, 108, ii i , 121, 123,
— in Smith s Glasgow Lectures, 51 US
— in Sm ith’s Wealth o f Nations, iii, 60 ff M acfie, A . L., 9
— in 3rd edn. o f Ricardo’s Principles, M achinery, 23, 58, 59
, 88, 94, 9 6 ,115 , 180,
105 f f 183, 186, 205, 206, 220, 277, 309, 313
See also Labour, M arx, Ricardo, Smith, M cLellan, D ., viii, ix, x i, x ii
T h eo ry o f value M allet, Sir L., 252
326 S T UD IE S IN THE L A B O U R T H E O R Y OF V A L U E
Malthus, T . R ., 88, 89, 90, 91, 92, 93, 95.
96, 99, 106, 107, 108, 114, 115, 122,
123, 162, 241
M andeville, B . de, 39, 40, 61
Manuel d’fconomie Politique (V. Pareto), 254
Manufacture, iv, 18, 19, 20, 22, 23, 24, 30,
41, 50, 56, 57 , 61, 69, 84, 92, 93 94, , — on private property, 136 f f
127, 291, 314
See also D ivision o f labour
M arcet, J., 128
Margin(al), 173
— land, iv, 93
— productivity theory, 250, 251
— revolution, x x ix , 243 ff.
— techniques, x x x , 248
— utility, x x ix , 73, 161, 213, 250, 251
See also T h eo ry o f value, U tility
Marginalism and Marxism (R. L. M eek), x x x
M arket, vi, xi, x x iv , x x v , x xxi, 14, 15, 27,
28,29, 30, 37 38 48
, , , 50 ,63,64,65, 69,
72, 73, 76, 80, 86, 87, 98, h i , 116,
145, 152, 182, 183, 201, 213, 215, 235,
238, 241, 255, 264, 265, 266, 268, 269,
271, 272, 278, 279, 280, 283, 289, 294,
300, 302, 305, 307, 314, 3i6, 317,
“ higgling and bargaining” of, 76, 170
— econom y, 48
Marshall, A ., 11, 74, 198, 199, 231, 235,
236, 244, 246, 252, 253, 286
Marshall's Principles o f Economics in the
Light of Contemporary Economic
Thought (C. W . Guillebaud), 286
M arx, K ., i, ii, v -x iii, x v -x x v i, x xviii,
xxix, x x x i, x x x iv -v ii, x l-x liv , 7-8, 25,
41, 42, 44, 45, 5 i, 53, 55, 62, 66, 78,
80-1, 85, 86, 101, 105, 118, chaps. 4, 5
and 6 passim, 243, 246, 251, 254,
256-66, 277, 278, 281,282,283,284 ff.,
294, 297, appendix passim
analysis by, in V o l. Ill o f Capital, xiv,
x v i f f , 186 ff.
application o f the concept o f value by,
177 ff*
arithmetical illustrations of, 197, 309
early developm ent o f econom ic thought
of, 129 f f
econom ic m ethod of, i, vii, xi, x iv, x v ,
xvi, x x iv , 138, 146 f f , 180-1, 208,
220 f f , 239, appendix passim
place o f the labour theory in the system
of, vii, 153 f f , 202, 203, 215 f f , 231 f f ,
237
“ p ro o f” o f the labour theory by, xvi,
163-4
refinement and development o f the
concept o f value by, 167 f f
reproduction schemes of, xi, xiii, 194 f f ,
304
— on abstract and useful labour, 165 f f
— on abstract categories, 64, 143, 175
M arx, K .— cont.
— on Classical political econom y, 1 1 ,1 7 6
— on demand, 178-9
— on “ manufacture” , 37
— on m oney, 173-4
— on price and value, 177-8
— on relations o f production, 19
— on religion, 133
— on skilled and unskilled labour, 168 f f
— on social and manufacturing division
o f labour, xii, 38, 61-2
— on socially-necessary labour, 167-8
— on the Classical concept o f labour,
135 ff*
— on the derivation o f profit from sur­
plus value, 187 f f
— on the ethical and political im plica­
tions o f the labour theory, 128
— on the labour-capital relationship,
182 f f
— on the law o f capitalist accum ulation,
185-6
— on the law o f value under socialism,
x xxii, 256 f f
— on the m ethod o f political econom y,
85-6
— on the value o f labour, xvii, 184 f f
— on use value and exchange value, 158
— on value, in chap. 1 o f Capital, 157 f f
M arx, K , i Engels, K , Sochineniya (ed.
Adoratsky), 257, 259
M arx and Science (J. D . Bernal), 131
Marx-Engels Gesamtausgahe, 135, 136, 137,
138, 139
, 140, 143
Marx: His Time and Ours (R. A . J.
Schlesinger), 230, 231, 232, 233, 234,
296
Marxian Economics and Modem Economic
Theory (O . Lange), 201, 226, 227, 228,
229
M arxian economists, 7, 264, 282
Marxism and Anarchism (G. D . H . C ole),
241
Marxist Quarterly, 286
Marx's Grundrisse (D. McLellan), v iii
Materialist conception o f history, iii, x iv ,
39 52 3
. - . 79-80, 129, 130, 134, , 139
140, 141, 143, 145, 146, 147, 148, 158,
164, 203, 234, 235
M ay, K ., 197
M ayer, J.-P., 131
Meaning and Validity o f Economic Theory
Measures for the Further Expansion o f Trade
(A. I. M ikoyan), 279
M eek, R. L., ii, iii, vii, xvii, x x x , x x x v , x li,
53, 54. 125, 273, 286
M ehring, E , 131, 132, 13 3 ,13 4
Memoirs o f the Hon. H. Home o f Kamest 3 1,4 1

Memorials o f Alfred Marshall (ed. A . C .
Pigou), 253
M enger, C ., 225, 243, 254
Mercantilism, 12, 51, 136, 286
decline of, 18 ff.
— and the theory o f value, ii, 14 ff., 22
M erchants), iv, 13, 14, 16, 18, 20, 23, 32,
46, 47 57
, , 60, 291
See also Capital
Merchant-manufacturer(s), 18, 19, 22
M ercier de la Riviere, P. P., 56
M ikoyan, A . I., 279, 283
M ill, James, 95, 96, 100, 101, 121, 123,
130, 135
M ill, J. S., 243, 244, 245, 246, 247, 249
M illar, J., $2, 129, 130
M ille r,}., 269, 271, 272
M illigan, M ., 133
M irabeau, M arquis de, 56
M itchell, W . C ., 249
Modem Quarterly, 52, 151, 286
Modest Enquiry into the Nature and Necessity
o f a Paper Currency (B. Franklin), 40
M oney, iv, v, viii, x x , x x i, xxii, 13, 25, 29,
40, 41, 51, 61, 68, 86, 87, 88, 89, 95,
96, 108, 114, 11$, 123, 144, 145, 155,
157 173 174 175
. , , . 183, 195, 207, 209,
228, 236, 245, 294
M onopoly, x vii, 31, 47, 59, 74, 184, 198,
199, 207, 212, 256, 301, 307, 3 H , 316,
317
— capitalism, xliii, x liv , 7-8, 156, 198,
232, 233, 242, 284 ff.
— price, 59, 178, 228, 284 ff.
M onroe, A . E., 14
M oral philosophy, 45, 129
Mouvement Physiocratique en France de
1756 a 1770 (G. Weulersse), 55
M yin t, H ., 249
Natural Value (F. vo n W ieser), 244, 251
Naturalisation, 19
Nature, role of, 21, 30, 36-7, 42, 44, 94,
124, 177-8
N .E .P . period, 265
“ N et revenue” , 66, 125
New Left Review, viii
Nichomachean Ethics (Aristotle), 295
Nicolaus, M ., viii, x i
“ N orm al need” , 15, 34, 72, 97
N orth , D ., 25
Notes on Bentham (D. Ricardo), 88
N o tk in , A . I., 275
N o vo zh ilo v , V . V ., x x x ii
O bjective necessity, 270, 272, 273-4, 2 ,
276
Observations on Certain Verbal Disputes in
Political Economy, 122
IN DEX 327
Okonomisch-philosophische Manuskripte (K.
M arx), I 2 i, 140
On Protection to Agriculture (D. Ricardo),
114
On Re-Reading M arx (J. Robinson), 201,
235 , 236
On the Correction o f M arx's Fundamental
Theoretical Construction in the Third
Volume o f “ Capital” (L. von B ortkie-
w icz), 194, 195
On the Jewish Question (K. M arx), 133, 134
Open Letter from a Keynesian to a Marxist
(J. Robinson), 235
Ordre Naturel et Essentiel des Societes
Politiques (P. P. M ercier de la Riviere),
56
Origin o f Ricardo's Theory o f Profits (G. S.
L. Tucker), 89
Origin o f “ The Political Economy of Social­
istn" (A. Kaufm an), 264, 266
O strovitianov, K ., 264, 266, 267, 268, 269,
273, 278
O sw ald, J., 55
Outline o f Political Economy (Lapidus and
O strovitianov), 264, 266, 267, 268,
269
Outlines o f a Critique o f Political Economy
(F. Engels), 135, 140, 258
Oxford Economic Papers, 280
Pareto, V ., 204, 205, 206, 207, 208, 209,
210, 2 11, 239, 243 , 251, 254, 255
Paris, 133, 134, 140
Parliam entary reform , 85
Pascal, R ., 52
Patten, S. N ., 30
75
Peasant(s), 14, 46, 155, * , 232, 262, 263,
265, 266, 268, 269, 295, 296, 314
Peasant Question in France and Germany
(F. Engels), 262
Pease, E. R ., 211
Peruvian Inca State, 163
Petty, W ., 11, 16, 27, 28, 35, 36, 37, 39 4 » *
Philosophical Notebooks (V. I. Lenin), x v
Philosophy o f Poverty (P. J. Proudhon), 143
Physiocrats, 55, 56, 136, 139, 188
Pigou, A . C ., 74
Pod Znamenem Marksizma, 269
Political Economy and Capitalism (M . H.
D obb), 32, 7 9 ,1 2 3 ,1 2 7 , 160,162, 183,
192, 246, 252, 253, 297
Pollexfen, J., 20
Population, 20, 23, 85, 93, 183, 185, 186,
241, 248, 317
Position o f the Labourer in a System o f
Nationalism (E. S. Fumiss), 20, 23
75 Poverty o f Philosophy (K. M arx), 80, 128,
130, 140, 141, 142, H . 3 144 145 , , 146,
169, 218
Pravda, 283
328 STUDIES IN THE L AB OUR T HE OR Y OF VALUE
Pre-capitalist societies, 8 i, 154, 198-200,
242, 290, 291, 293, 294, 29s, 296, 297,
303-6----------------------------------------
See also C o m m o d ity
Preference schedules, 254-5
Preliminary Theses on the Reform o f Phil­
osophy (L. Feuerbach), 132
Premiire Introduction a la Philosophic
£conomique (N . Baudeau), 56
Preobrazhensky, E. A ., 264
Present as History (P. M . Sw eezy), 211
Price, vi, xiii, xiv, x v ii-x x ix , x x x i-x lii, 12,
18, 22, 43 , 6 1, 69,95 , 207,304 , 306,
308-12, 316
com ponent parts of, 55, 71
“ conventional” , 14
cost, 23, 190, 191, 192, 193, 210
market, 15, *6, 18, 28, 31, 48, 49, 50,
72, 74, 178, 181, 199, 200, 205, 206,
215, 216, 237, 240, 272, 292, 295
“ norm al” or “ natural” , 11, 24 ff., 32,
33 34 35
, , , 48,49 , 50, 51.55 , 56, 71,
72, 73, 74, 81, 98, 100, 116, 181, 188,
237, 286
“ political” , 28
“ real” , 67, 68, 69
— o f corn, 93, 94, 96, 97, 102, 103
— o f production, x v , x ix , x x v i, 181,
188, 189, 190, 191, 192, 193 , 198,199 ,
209, 210, 213, 224, 232, 234, 284, 285,
286, 288, 291, 308, 309
— ratios, x x , xxii, xxiii, x x x v , x x x v ii,
xx x viii, 70, 80, 85, 162
— revolution, 16
See also Cost, Equilibrium , Just price,
M onopoly, V alue
Primitive Money (P. Einzig), 294
Principles o f Economics (A. Marshall), 198,
244, 252
Principles o f Political Economy (T. R.
Malthus), 107, 122, 123, 124
Principles o f Political Economy (J. S. M ill),
244, 245, 246, 247
Principles o f Political Economy (D. Ricardo),
94, 95, 97, 101, 104, 105, 106, 107,
109, n o , h i , 112, i i 6 , 117, 118, 119,
197
“ Privations theory” , 57
Probleme de la Theorie Marxiste de la Valeur
(R. G uiheneuf), 212, 234
Production, viii, xii, x x iii, x x x iii-v i, 12,
59, 65-6, 137, 139, 141, 142, 246, 278,
291, 303 305, , 306, 312
branches of, 73, 178, I79> 180, 181, 183,
188, 189, 191, 192, 194, 199, 209, 210,
230, 267, 280, 281, 292
conditions of, x x v i, xxvii, xx viii,
x x x v iii, x x x ix , xli, 63, 64, 78, 79, 104,
142, 145, 150, 167, 168, 176, 205, 213
difficulty of, 93, 94, 95, 9 9 ,1 0 7 ,1 1 5
Production— cont.
facility o f, 89, 94, 95, 99, 107, 114
forces of, 80, 143, 271_______________
means of, x x v , x xx iii, x x x v iii, x x x ix ,
47 139
x l, xli, 17, 175
, , 152, , 183, 184,
193 194 195
, , 199 , 196, , 205, 215, 227,
228, 229, 231, 258, 259, 262, 263, 272,
275, 276, 277, 280
m ode of, x v , x x x v ii, 18, 140, 146, 150,
151, 153 75
, 175, I <, 182, 261, 264, 282,
303, 305 , 307, 312
periods of, 65, 66, 103
process of, 17, 26, 33, 35, 78, 176, 187
product of, 277, 278
relations o f, xii, xiv, x v , xvi, x x iv , x x v i,
xlii, xliii, 19, 26, 39, 42, 52, 54, 60, 62,
79-80, 118, 119, 126, 129, 139, 143,
145, 146, 148, 149, 151, 152, 153 154
, .
155, 156, 163, 167, 174, 175, 182, 203,
217, 220, 223, 229, 230, 231, 233, 234,
240, 246, 248, 249, 267, 268, 270,
287 ff., 301-13, 317
sphere o f, 23, 27, 79
stages of, 38
— and consum ption, 91, 95, 145
— b y independent producers, 12, 13, 14,
17, 19, 23, 29, 47, 49, 53, 54, 64, 66,
70, 155. 267
See also C o m m o d ity, C ost
Production and Distribution Theories (G. J.
Stigler), 255
Production o f Commodities by Means o f
Commodities (P. Sraffa), iv, x x v iii,
x x x ii ff.
Productive and unproductive labour, 20,
24, 57 , 65
Products-exchange system, 280
Profit, iv, v, vi, viii, ix, xvi, xix, x xii,
x x iv , x x v , x x v i, x xviii, x x x v i-x li,
xliii, 11, 18, 23, 25, 28, 54, 55, 56, 59,
65, 66, 73, 74, 77, 79, 81, 89, 90, 91,
92, 93, 100, 101, 102, 103, 108, 119,
120, 127, 128, 136, 145, 180, 187 ff.,
199, 209, 212, 215, 224, 225, 235, 236,
237, 238, 245, 255, 264, 285, 286,
291, 292, 293, 301, 304, 305, 307, 308,
309 313 314 317
, , ,
agricultural, 90, 91, 93
average or norm al rate of, iii, iv, v, xix,
x x v , x x v i, x x v ii, x x x v ii, 26-7, 28, 29,
31, 32, 46 ff., 55, 65, 91, 93, 98, 103,
104, 116, 119, 176, 180, 181, 182,
188, 189, 195, 210, 213, 241, 245, 286,
305, 312----------------------------------------
“ com -ratio” theory of, 91
falling rate of, vi, 90,91,92,93, 301, 312 ff.
gross, 25
level o f, 33, 71, 74, 8 i, 84, 88, 90
m aximisation of, 53, 54, 57
“ m axim um ” , 292
 IN D E X 329

— COttt. Revisionists, 2 11, 212, 214

ire” or “ net” , 33 Rhenish Gazette, 132
— and “ brokerage” , 30----------------------- R iazano v , P . , 131----------------------------------
— and interest, 25-6, 176 Ricardian socialists, 124 ff., 202
— and labour pow er, 20, 24, 26, 71 Ricardo, D ., iii, iv, x v , x x x i, x x x v , x l, 7,
— and rent, 25-6, 27, 36, 140 78, 79, chap. 3 passim, 121, 122, 123,
— and wages, 26-7, 34, 47, 49, 54, 75, 124, 125, 126, 130, 144, 145, 154, 173 ,
94, 105, 107, i n , 112, 144,
182 177, 181, 188, 209, 229, 235, 23<S, 241,
— as general category o f class incom e, 243, 244 245
, , 246, 247, 251, 252, 253,
24* 36 49
, 284, 303, 306, 310, 312, 313, 314
— o f merchant, 13-14 , 16, 17, 19 general m ode o f approach of, xi8, 299
— “ upon alienation” , 17, 24, 27, 286 place of, in the history o f the labour
See also Capital theory, 116 ff.
Proletariat, 262, 263, 268, 273, 302 — and the developm ent o f the concept
Property, 22, 32, 124, 139, 178, 218, 278, o f absolute value, n o ff.
281 — and the developm ent o f the labour
m oveable and im m oveable, 140 theory, chap. 3 passim
private, 1 3 6 , 137,138, 39,
1 140 ,142,220 , — on rent, 36, 92 f f , 144
240 — on utility and value, 162
public, 280 — on value in the 1st edn. o f the
— in com m on, 163 Principles, 97 ff.
— relations, 19, 142, 152 — on value in the 3rd edn. o f the
— rights, 125 Principles, 105 ff.
Property and Society: The Scottish Historical — on value prior to 1817, 86 ff.
School o f the Eighteenth Century (R. Richardson, G. B ., 315
Pascal), 52 Risk, v, vi, 12, 13, 29, 47, 49, 293
Proposals for an Economical and Secure Robbins, L., 251
Currency (D. Ricardo), 95 Robinson, J., 201, 225, 234, 235, 236, 237,
Proudhon, P. J., 128, 130, 140, 143, 144
, 238, 239, 261, 311, 315
145, 157, 218, 259 Rodbertus, K . J., 128, 130, 251
“ Putting out” systems, 19, 23 R ogin, L., 317
Ross, W . D ., 295
Rousseau, J.-J., 40
Quesnay, F „ xlii, 56, 299
R uge, A ., 132, 133
Quintessence o f Socialism (A. Schaffle), 259
Samueison, P. A ., x x iii, x x iv
Raphael, D ., iii Sanina, A . V ., 276
H avenstone, P., 125 4
Say, J.-B ., 92, 95, ” . 122, 135, 162
Read, S., 121, 122, 124 Say’s Law , 92
Reflections on the Formation and the Distribu­ Scarcity, 28, 50, 86, 98, 101, 227, 231, 248,
tion o f Riches (A. R . J. T u rgo t), v , 56, 249
57 Schaffie, A ., 259
Relations o f production. See Production Schlesinger, R . A . J., x x ix , 225, 230, 231,
Religion and the Rise o f Capitalism (R. H . 232, 233, 234, 239, 296
T aw n ey), 13 Schmidt, C ., 214, 220
Rent, v , v i, x , x x v , xli, xliii, xliv, 24, 25, Scholasticism, ii, 14-15
26, 27, 35 6 54 55 59
- , . , 73 74
, 65, 71. , , Schulze-Delitzsch, 157
79, 81, 84, 92, 93, 94, 100, 101, 102, Schumpeter, J. A ., ii, iii, 6 2 ,12 2 ,12 9 ,2 4 6 ,
127, 136, 140, 144 145
, 178
, 150, 176, , 251, 252, 253, 254, 255, 299
212, 235, 236, 251, 255, 301 Schuyler, R . L., 41
Reply to Bosanquet (D. Ricardo), 88 Science and Society, 235, 237, 273
Reproduction Scott, W . R., 41, 47, 55, 5$, 61
expanded, xlii, 26$, 304 Scottish Contribution to Marxist Sociology
(R. L. M eek), 53-----------------------------
“ Reserve A rm y ” , 186, 259, 301 Scottish Highlands, $4
Review o f Economic Doctrines (T. W . Scottish Historical School, 52
Hutchison), 204, 248, 251 Scottish Journal o f Political Economy, 9, 54
Review o f Economic Studies, x xiii, 9, 201, Scrope, G . P., 123, 124
226, 273 Select Collection o f Scarce and Valuable
Review o f Economic Theory (E. Cannan), 67 Tracts on Commerce, 30
330 STUDIES IN THE LABOUR THEORY OF V A L U E

Selected Correspondence o f M arx and Engels, Socialism— cont.

viii, ix, x, 143, 1 4 4 ,1 4 9 ,1 6 5 ,1 7 8 , 181, operation o f law o f value under, x x x ,
1 8s x x x i. x x x ii. 2 s6 ff.. 2 0 1 - 1 206
Selected Essays o f Karl M arx (H. J. S terming), Socialist parties, 201, 251
134 Sombart, W ., 220, 233, 23$
Selected Works (V. I. Lenin), 147, 214, 301, Some Considerations o f the Consequences o f
302 the Lowering of Interest (J. Locke), 22
Selected Works (K. M arx), 41, 141, 151, Some Questions on the Teaching o f Political
152, 167, 177, 178, 182, 184, 208 Economy, 269
Senior, N ., 123, 24s Some Thoughts on the Interest of Money in
Seton, F., x x iii General, 42, 43 44 .
Sewall, H. R., 13, 14 Sorel, G ., 220
Sismondi, S. de, 11 So Wet Studies, 264, 269, 271, 272
Skill, 29, 68, 219, 295 Spiegel, H. W ., 251
average degree of, 77, 167-8 Sraffa, P., iii, iv, x x v iii f f , 74, 78, 91, 92,
Skilled and unskilled labour, x v i, 74 f f , 81, 94. 95. 96, io o , 102, 104, 10$, 106,
144, 168 ff., 177, 204, 217, 232, 233, i i i , 112, 116, 315
240 Srqffa System and Critique o f the Neo-
Slavery, X28, 140, 152, 182, 199, 216, 289 Classical Theory o f Distribution (M. H .
Slavs, 257 D obb), x ii
Sm ith, A ., ii, iii, iv, v , vi, vii, x v , x x x i, Stalin, J. V ., x x x , x x x i, 270, 273, 274, 275.
xliii, 7, 11, 13, 16, 20, 31, 34, 43, 44, 276, 277, 278, 279, 280, 281, 282, 283,
chap. 2 passim, 82, 83, 84, 86, 88, 89, 284, 292, 293
90, 94, 126, 127, 128, 129, 134, 136, Stalin as an Economist (R. L. M eek), 273
139, 144. 177. 212, 213, 214, 246, 303, Standard com m odity, x l, xii,
306, 308, 310, 3 11, 312, 313 State in Relation to Labour (W .S. Jevons),
general m ode o f approach o f, 118, 299 248
place of, in history o f value theory, State interference, 74, 29s
77 ff. Statics and dynamics, 229, 246-7, 248, 252
R icardo’s critique of, in 1st edn. o f the Stationary state, 246-7
Principles, 97 ff. Status, 12, 74. 75 295
,
— and G lasgow , 54 Stein, P., iii
— and the developm ent o f the labour Stenning, H . J., 134
theory, iii, chap. 2 passim Steuart, S irJ., 18, 27
— and the French Physiocrats, 55 ff. Stewart, D ., $$, 60
— and the Glasgow Lectures, iii, 45 ff. Stigler, G . J., 2$5
— and the transition to the Wealth of Stock, vi, 24, 26, 27, 46, 47 54 5 9
, . S< , S . 70,
Nations, iii, 53 ff. 71, 100, 101
— on accumulation, 46, 54, 56 ff. Storch, H . F. von , 261, 262
— on consum ption, 51 Studies in the Development o f Capitalism
— on demand, 50, 72 ff. (M. H . D obb), 17, 19
— on “ natural price” , 27, 188 Subjectivism, 15, 246
— on “ prim e cost” , 31 Summa Theologica (Aquinas), 14
— on Rousseau, 40 Supply, 73 74
, . 123, 162, 179, 184, 188,
— on skilled and unskilled labour, 74 ff. 199, 250, 260, 292
— on the com ponent parts o f price, 55 — o f labour, x x x v iii, 186, 317
— on the division o f labour, 60 f f — price, vi, 199, 200, 253, 288 ff.
— on the feudal constitution, 46 Supply and demand, x x v , 15, 30, 31, 48,
— on the orders o f civilised society, 54, 50, 78, 96, 99 , 114, 122, 177, 179 , 186,
S9-60 207, 208, 214, 215, 217, 238, 241, 245,
— on the “ real measure” o f value, 60 ff. 289, 296, 311
— on the “ regulator” o f value, 69 ff. See also Dem and, Supply, T h eo ry o f
— on utility, 72 f f Value
— on w ages and profits, v , v i, 26 -7
Smith, Turgot, and the “ Four Stages” xxiii, x x iv , x x v , x l, xliii, 17, 33, 36,
Theory (R. L. M eek), iii $9, 66, 78, 84, 93, 123, 127, 144, 170,
Social D em ocratic Party, 211 171, 176, 179, 180, 183-4, 185, 187,
Socialism, x x x i, x x x ii, 128, 134, 2 11, 228, 188, 189, 190. 192, 193 195
, , 205, 206,
242, 2 $6 f f , 297 209, 210, 212, 222, 224, 225, 237,241,
“ economics o f ” , x x x , 256 2$ 1, 285, 292, 293, 304, 307, 308, 309
 INDEX
Surplus value— cont.
aggregate, x x v , x x v i, 188, 189,190, 191,
196, 197, 2 i l , 213, 286
appropriation of, 127, 128, 181
extra, 206, 207
3
rate of, 187, 304, 13
theory of, 126, 179 ff.
Suslov, M . A ., 282, 283, 284
Sw eezy, P. M ., 172, 191, 197, 2 11, 212,
284, 297
Systhnes Socidlistes (V . Pareto), 204, 207,
208, 209, 211
System o f Economic Contradictions (P. J.
Proudhon), 143
System o f Logic (J. S. M ill), 249
System o f Moral Philosophy (F. Hutcheson),
34 49 75
* ,
System or Theory o f the Trade o f the World
(I. Gervaise), 41
Tableau ticonomxque, xiii
T aw n ey, R . H ., 13
Tem ple, W ., 28, 30, 31
Theoretical System o f Karl M arx in the Light
o f Recent Criticism (L. B . Boudin), 212
Themes o f Surplus Value (K. M arx), 25,
51, 55. 66, 80, 81, 101, 118, 120, 181,
189, 193
Theory o f Welfare Economics (H. M yint),
249
Theories and Practice o f Communism (R. N .
C arew H unt), 240, 241
Theory o f Capitalist Development (P. M .
Sw eezy), 172, 191, 212, 284, 297
Theory o f Economic Change (B. S. K eir-
stead), 84
Theory o f Monopolistic Competition (E.
Cham berlin), 74
Theory o f Moral Sentiments (A. Smith), 60,
73
Theory o f Political Economy (W . S. Jevons),
244, 248, 249, 250
Theory o f the Just Price (R. Kaulla), 13, 15,
295
T h eo ry o f value
Canonist, ii, 12 ff.
cost, 77, 246
cost o f production, 32, 105, 235, 245
demand, 77
developm ent of, from Ricardo to M arx,
120 ff.
dualism in early, 30
effect o f “ M arginal R evolution” and
its aftermath on, 243 ff.
expulsion o f utility from , 256
form al requirem ents of, 160 ff.
general equilibrium , 253 ff., 298
m arginal utility, 73, 161, 201, 202, 203,
2 11, 214, 227, 230, 239, 249, 250, 251
M ercantilist, ii, 14 ff.
331
T h eo ry o f value— cont.
supply-and-demand, 32, 217, 244, 245
Smith’ s place in history of, 77 f f
tasks of, xvii, x x iv , x x v , 33, 63, 83 f f ,
98, 127, 182
transition to Classical, 18 ff.
utility, 114, 122, 245, 256
“ wages-cost” , 23
— before A dam Smith, 11 ff.
— in M a rx ’s Capital, V ol. I, x v i f f ,
157 ff, 304 ff
— in M arx’s Capital, V o l. III, x v i ff.,
186 ff., 308 ff.
— in Ricardo’s final stage, n o ff..
— in Ricardo’s Principles, 1st edn., 97 ff.
— in Ricardo’s Principles, 3rd edn., iv,
105 ff.
— in R icardo’s w o rk before 1817, 86 ff.
— in Smith's Glasgow Lectures, iii, 45 ff.
— in Sm ith’s Wealth o f Nations, 60 ff.
See also Labour theory o f value, Value
Theory o f Value before Adam Smith (H. R.
Sewall), 13, 14
Thom pson, W ., 125, 127, 128
Thiinen, J. H . von, 125
T ob acco trade, 54
Torrens, R ., 103, 115, 122, 123
Towards a Dynamic Economics (R. F.
Harrod), 256
T ow m h en d, C ., 31
Trade, iv, viii, ix, xi, 17, 25, 27, 2 9,31, 39,
41, 54, 84, 90, 207, 277, 290
balance o f , 89
colonial, 97
free, 56
international, viii, ix, xi, 281
“ Traffike” , 19
Transform ation problem , x v i ff., 193 ff.,
232, 233, 237 310
.
T ro w er, H ., 9 0 ,11 3
T ucker, G . S. L., 89
T ucker, J., 31, 41
T u rgot, A . R. J., iii, iv , v , vi, vii, xliii, 56,
Turgot on Progress, Sociology and Economics
(R. L. M eek), vi
Turnover periods, 190, 310
United States of America, 269, 283
Use value. See Utility
U.S.S.R., 203, 263, 264, 266, 269, 270,
272, 273, 274, 277, 278. 279, 280, 281,
282, 284, 293, 296
Utility, xii, xvii, n , 1 5 ,1 6 , 21, 24, 34, 42,
43, 72 ff., 88, 95, 97 , 122, 144, 155 ,
15 8 ,1 5 9 ,16 0 , 161, 162 ,163, 16 5 ,17 3 ,
174, 178, 179. 20s, 224, 248, 249, 250,
252, 254, 255, 256, 261, 285, 311
See also Theory of Value
Utopianism, 134
332 STUDIES IN THE LABOUR THEORY OF V A L U E S

Value W ages— cont.

absolute, i i o , h i , 112, 114, 115, 117, iron law of, 186, 240
120, 122, 124, 160, 244 level of, x x v , x x v i, 32, 71, 74, 81, 94,
added, 22, 59 186, 269
individual, 87, 160, 181, 206 rate of, 65, 78
intrinsic, 15, 28, 29, 30, 48, 86, 87, 158 real, x x vii, 99, 285, 314
m agnitude o f, x x v , 157, 167, 175, 177 social element in, 144
measure of, iii, iv, 36, 41, 51, 63, 68, 83, subsistence theory o f, 144
87, 88, 95, 97, 99, 99, 101, 106, 107, — goods, 183, 236, 279, 308, 313, 316
108, 109, 110, i i i , 112, 113, 114, 115, — and price o f food, 91
124, 167, 195, 207, 212, 236 — and profit, 26-7, 3 3 ,7 1, 75, 90, 94, 96
“ natural” , 15, 112 — o f superintendence, 26, 29
paradox o f, 73 See also Labour
positive, 113 W agner, A ., 259, 260
real, 18, 66, 67, 69, 111, 113, 114, 11$, W aiting, 252
120, 122, 206, 244 W alras, L., x x x , xliv, 243, 254, 256
“ real measure” of, 60 ff., 69, 78, 80, 81 W ants, 16, 40, 51, 60, 72, i$5, 158, 161,
“ regulator” o f, 63, 69 ff., 81, 101 163, 166, 184, 248, 261
substance o f, 51, 63, 117, 157, 160, 167, W a r Com m unism , 264
208 War Economy o f the U .S .S .R . in the Period
— and producers' cost, 14, 18 o f the Patriotic War (N . Voznesensky),
— and utility, 15,2 1-2 , 88, 95, 97, 122, 273
155, 158, 160, 161, 162, 163, 178-9, W ealth, xii, 21, 22, 23, 32, 33, 41, 68, 83,
252 84, 124, 128, 136, 158, 176, 221, 246,
— as a social relation, vii, 6 2,79 -8 0 ,12 6 , 248
23 S progress o f, 93, 96, 246
— as expression o f “ norm al” price, I I , — and value, 34, 42, 44, 88, 125
98 Wealth o f Nations (A . Smith), v, vi, 11, 20,
— o f productive agents, 33, 239 25 7 3 32
- , i, , 42, 44 8 - , 50, 51, 53 5- ,
— relationships, xiii, 160, 164, 173, 308 57-62, 66-74, 76 77
, , 81-3, 86, 94, 98,
See also C ost, Labour theory o f value, 99, 127, 170, 172, 291
T h eo ry o f value, U tility, W ealth W elfare econom ics, x x x , 256
Value, Price and Profit (K. M arx), 208 W est Indian sugar planters, 47
Venable, V ., 147 W eulersse, G ., 55
Venzher, V . G ., 276 W hateley, R ., 248
Vindication o f Commerce and the Arts What is Property? (P. J. Proudhon), 143
(W . Tem ple), 30 W icksteed, P. H ., 251
“ Voluntarism ” , 274 W ieser, F. von, 244, 251
Voraussetzungen des Sozialismus und die William Stanley Jevons (J. M . Keynes), 247
Aufgaben der Sozialdemokratie (E. W intem itz, J., x xii, x xiii, 195, 196
Bernstein), 212 W oodhouselee, Lord, 31
Voznesensky, N ., 273 W o rk in g class, 121, 124, 125, 127, 128,
“ V u lgar” M arxism , 202 134 135
, , 1 4 1 , 1 5 8 , 1 7 1 , 18 4 ,18 6 ,2 0 1,
203, 213, 248, 2 71, 301, 307
Wage-Labour and Capital (K. M arx), 151 W o rk in g day, 183, 184,190
W ages, iv, v, ix, x, x vii, x x v , x x v ii, x x v iii, Works (B. Franklin), 41
x x x v -x liii, 22, 23, 24, 34, 54, 55, 57, Works (J. Locke), 22
59
, 65, 68, 76, 78, 79, 81, 92, 93 99
, , Works (D. Ricardo), iii, 78, 79, 83, 84, 86-
100, 102, 103, 104, 105, 107, 108, 109, 103, 105-120, 122, 123, 127, 130, 162,
110, i i i , 112, 115, 116, 119, 128, 136, 170, 246
140, 144, 145, 169, 170, 172, 180, 185, Works o f Aristotle (ed. W . D . Ross), 295
186, 187, 188, 193, 213, 235, 236, 241,
245, 250, 255, 259, 264, 285, 291, 300, Zamechaniya na Knigu N . Bukharina
307 309 3 6 317
, , i , “ Ekonomika Perekhodnovo Periodau (V.
differences in, 77 I. Lenin), 263, 264, 265
 STUDES IN THE
LAmRTHEDRY
RONALD L. MEEK

In writing Hhis book which first appeared in 1956,

Meek had two distinct objectives: 1) “ to build some
sort of bridge between Marxian economists and their
non-Marxian colleagues so that the latter can at least
be made to see what the former are trying to get at”
and 2) to help his fellow Marxian economists in the
task of reapplying the Marxian catagories to the very
different conditions which obtain a century after the
publication of Das Kapital. . . . The reader of this
second edition will have the original work intact plus
additions which greatly enhance its value for econo­
mists of the 1970s, Marxian and non-Marxian alike.

Monthly Review Press

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